A pet project(ion)
KAP INTERNATIONAL isn’t one for the hip investor, offering exposure to old economy segments such as automotive, textiles, packaging, footwear, milling and meat. Since peaking at around 500c on the JSE in 2007, after the possibility of corporate action titillated investors, the share has drifted down and lately bounced unconvincingly between 200c and 250c.
At its current price, KAP is trading at a substantial discount to its last stated net asset value of around 320c/share and on a forward earnings multiple (pencilling in earnings of 25/share for the full year to end-June 2011) of around 10 times.
So KAP is by no means an expensive share. But then companies with automotive and textile exposure do attract some derisory ratings. Admittedly, it’s difficult to get excited about KAP’s operating divisions – even those that operate in specialist niches, such as Feltex (trim for vehicles), Glodina (towels) and Wayne/United Fram (industrial footwear).
Still, have a squiz at KAP’s operating cash flow of R149m (equivalent to around 35c/ share) and you’ll see those businesses more than just wash their own faces (and also explains the marked reduction in gearing).
However, the X-factor at KAP is the Hosaf PET synthetic fibres operation, which is aligned to the packaging sector and subject to some hefty capital expenditure two years ago. KAP provides only a basic (industrial/consumer) divisional breakdown in its interim results but it’s clear Hosaf is having an impact on the industrial side. The industrial segment grew profits to R68m in the half-year to year-end 2010 compared with R54m in the corresponding period last year.
Hosaf’s profitable niche – coupled to a higher revving automotive sector – makes KAP an interesting prospect for value inclined investors.
Our only question at this stage is: What does Steinhoff International do with its 24,6% stake in KAP?