The sap is ris­ing, but not the share price

Financial Mail - - MARKET WATCH - @mar­chasen­fuss by Marc Hasen­fuss

Agris­er­vices busi­ness Kaap Agri — which has a fast-grow­ing re­tail foot­print in its Agri­mark stores and The Fuel Com­pany (TFC) — sig­nif­i­cantly did not raise cap­i­tal when it listed on the JSE last year.

Ad­mit­tedly Kaap Agri hardly looked in need of a fresh in­fu­sion of cap­i­tal at the time, and sug­ges­tions were that the com­pany could come to the mar­ket any time for fund­ing if an ap­pro­pri­ate ac­qui­si­tion popped onto the radar. But the com­pany might, in ret­ro­spect, have wished it had raised cap­i­tal when there was still some buzz around a new agribusi­ness listing.

Af­ter peak­ing at around R63.90 in mid-2017, the Kaap Agri shares have re­treated rather rapidly to what at the time of writ­ing was a new low of around R31.50.

Naturally, per­cep­tions about the busi­ness have been clouded by the pro­longed drought in the Western

Cape, and pos­si­bly the more wary at­mos­phere in agri­cul­tural cir­cles around ex­pro­pri­a­tion of land with­out com­pen­sa­tion.

While en­thu­si­asm for Kaap Agri is be­ing rapidly reined back, the group’s stoic ex­ec­u­tives re­main firmly on the front foot in terms of ex­pand­ing the foot­print. Grain stor­age ca­pac­ity has been in­creased, more store sites for its Agri­mark and other re­tail brands are be­ing ac­tively sought and the fuel busi­ness is revving hard on the ex­pan­sion path.

Dur­ing last week’s in­vest­ment pre­sen­ta­tion, Kaap Agri ex­ec­u­tives ad­mit­ted the com­pany might need to tap the mar­ket at some stage for fund­ing for TFC. With the share at a record low and re­flect­ing a nine times earn­ings mul­ti­ple, there might be some re­luc­tance to is­sue new pa­per at th­ese desul­tory lev­els.

It’s quite pos­si­ble sen­ti­ment will turn quickly if Kaap Agri’s in­terim re­sults show fur­ther ev­i­dence that the com­pany emerged from the pro­longed drought with very lit­tle last­ing dam­age.

But at cur­rent lev­els, I won­der if ma­jor share­holder Zeder — the Ps­g­con­trolled agribusi­ness in­vestor — would not look to bol­ster its al­ready in­flu­en­tial stake in Kaap Agri.

Af­ter all, Zeder will soon be look­ing more flush as a ben­e­fi­ciary of some of the big cash earned by sub­sidiary Capes­pan, which sold its mi­nor­ity stake in a Chi­nese fruit-mar­ket­ing ven­ture for a sig­nif­i­cant profit.

By hook or by Crookes

Since we are on the topic of farm­ing — share­hold­ers in Mt Edge­combe-based agribusi­ness Crookes Broth­ers might have been sweat­ing be­fore re­as­sur­ing in­terim re­sults were re­leased last week. With the much big­ger Ton­gaat Hulett go­ing through a bit­ter patch, it was heart­en­ing to see Crookes sweet­en­ing those all-im­por­tant cash flows by 86% to R52m to end-septem­ber.

While the core sugar divi­sion (op­er­at­ing profit in­creased 16% to R78m) per­formed ex­cel­lently de­spite prices still be­ing markedly lower than in the pre­vi­ous two years, it was the smaller seg­ments that re­ally caught the eye.

Rev­enue from macadamias was re­ported sig­nif­i­cantly higher at R8m as new or­chards came into pro­duc­tion. Crookes’s ex­ec­u­tives re­port that growth in this niche con­tin­ues to ex­ceed ex­pec­ta­tions. The new prop­erty de­vel­op­ment seg­ment re­ported rev­enue 113% higher at more than R35m as the sale of units in Ren­ishaw Hills near Scot­tburgh gained mo­men­tum.

Op­er­at­ing mar­gins were re­in­forced as early sales were at at­trac­tive prices. While mar­gins in the banana divi­sion were some­what squashed, there was still a mean­ing­ful profit of around R9.5m.

If the Western Cape-based de­cid­u­ous fruit divi­sion can har­vest a profit af­ter the pro­longed drought in the re­gion, the next 18 months could be quite in­ter­est­ing for Crookes. Don’t for­get the com­pany also ex­panded its sugar crop area to 6,755ha.

Per­cep­tions have been clouded by the drought … and pos­si­bly the more wary at­mos­phere around ex­pro­pri­a­tion

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