KAP Industrial’s pleasing annual results boost share price

KAP INDUSTRIAL’S shares rose nearly 4 percent yesterday as it continued to grow and generate cash, despite the sluggish economy. KAP closed 3.7 percent higher at R7.33 on the JSE yesterday.

In the year to June, the diversified industrial group shrugged off Steinhoff ’s offloading of a 16 percent stake in KAP, with revenue from continuing operations increasing by 16 percent to R22.9 million, compared with the prior year.

KAP’s chief executive, Gary Chaplin, said yesterday that it had been a particularly challenging year, and the group was helped by focusing on execution of its strategy.

“The cash generation of the business was particularly pleasing,” Chaplin said.

Operating profit before capital items from continuing operations increased by 15 percent to R2.8m, compared with R2.4m the year before. The operating margin remained stable at 12.5 percent, slightly lower than 12.6 percent in 2017.

Chaplin said KAP had concluded several major projects during this year, which positioned the business well for future growth.

“While we continuously seek out and evaluate growth opportunities, the primary focus of management in the year ahead will be on optimising KAP’s expanded operations and growing our market share in all areas of operation to extract full value from our recent investments and transactions,” he said.

The company concluded a R1.3 billion expansion to its PET facility in Durban during the year, following the R4bn acquisition of plastics manufacturer Safripol and major expansions to its bedding and timber operations in the previous year.

The company, with wellknown brands such as PG Bison, Unitrans, Safripol, Restonic, Greyhound and Vitafoam, also recently announced the conclusion of a broad-based black economic empowerment (B-BBEE) transaction in its Unitrans operations and the creation of the Sakhumzi Foundation Empowerment Trust to facilitate further B-BBEE initiatives.

Avior Capital Market’s senior analyst, Mark Hodgson, said KAP’s financial performance was decent overall, boosted by a lower tax rate and reflected a tougher second half.

“Their broad operational footprint has meant the slower economic growth in South Africa has impacted their financial performance,” Hodgson said. “There was no impact from the sale of Steinhoff ’s 17 percent KAP shareholding in March 2018,” said Hodgson.

In March, Steinhoff International Holdings reported it had raised R3.667bn in an over-subscription of its book of demand for KAP stock it had decided to sell. This was part of efforts by Steinhoff to ward off debtors as its shares tumbled amid an accounting scandal.

Hodgson said diversified industrial and diversified chemical segments performed well, while the diversified logistics segment had a disappointing second half.

Cratos Capital analyst Ron Klipin said the widespread footprint should be a positive for KAP, as was the diversity of its widespread operations.