The CEO of agricultural services group Kaap Agri, Sean Walsh, says the company is bracing for a bumper apple, pear and citrus harvest that will positively affect the business, as it looks to expand.
This comes as the agricultural sector, which experienced record wheat prices, anticipates last year’s good rain will bring some relief after years of drought, particularly in the Western Cape where record apple, citrus and pear harvests are forecast.
The apple and pear industries generate more than R9bn annually.
“We expect to have record volumes in the apple and pear industry and the farmers will want to sell their products, even if it is at a marginal profit because of the higher input price,” Kaap Agri CEO Sean Walsh told Business Day.
He added that record volumes out of the citrus industry are also on the cards.
New Zealand and SA are the only countries where apple production is expected to increase, between 15% and 4% respectively, in 2022, according to data by the World Apple and Pear Association (Wapa) forecast, which consolidates the data from the southern hemisphere countries including Argentina, Australia, Brazil and Chile.
Warning that record volume in those sectors will not necessarily translate into record profit, Walsh said the boom will assist in offsetting some of the input cost pressure effect on working capital requirements, bemoaning that the price of fertiliser is 85% higher than a year ago.
Exceeded expectations
In the six months to March, its Agrimark Grain segment grew 38.1%, benefiting from the largest wheat harvest intake in 16 years.
Mechanisation services exceeded all expectations for the period, the group said.
The upcoming fruit boom is expected to have a similar effect on the books.
The Western Cape-based Kaap Agri runs various brands, offering farming equipment, dog food and building materials, in addition to owning a network of retail fuel sites.
Established in 1912, the group also offers financial, grain handling and agency services. It has 226 business units in eight SA provinces and Namibia.
Tuesday’s half-year report shows Kaap Agri’s revenue rose 26.1% to R7.18bn in its six months to end-March, bolstered by surging prices, with the group reporting product inflation of 20.1%, or 9.2% when excluding fuel costs.
SA farmers are facing surging prices for fuel, fertiliser and chemical commodities, a situation made worse by Russia’s invasion of Ukraine. Both countries are large exporters of wheat and fertiliser, with Kaap Agri warning on Tuesday that SA’s exports into these markets are also under threat from sanctions.
Increased dividend
Headline earnings rose 13.5% to R247m, with the group reporting margin pressure in its fuel business due to inflation and volumes falling as customers resist higher prices. Margins were also under some pressure in terms of agricultural equipment sales, the latter due to changes in the group’s sales mix.
The group increased its interim dividend by 15% to 46c, about a R35m payout. It did not pay a dividend for its 2020 half-year but paid out 33.5c per share in 2019.
The 110-year old company saw its share price dip after Zeder investments announced an unbundling of its shareholding of 31,286,956 Kaap Agri shares at end-February, comprising about 42.2% of the total issued share capital of Kaap Agri.
“That caused the share price on the Zeder announcement to skid some 26% hitting a low of R40,73,” said SmallTalk Daily analyst Anthony Clark, noting it had come off of a near high of R58.50.
Zeder, which described the unbundling to be in the best interest of shareholders to maximise shareholder wealth, had since 2006 been a shareholder in Kaap Agri.
“It has bounced back in the last couple of weeks I think as the market has realised the inherent potential of this agricultural business moving into its third if not possibly the fourth year of good agricultural recovery,” Clark said.
Similar frenzy
The share price rose more than 3% after the group’s results were announced on Tuesday, before closing at 2.08% higher to trade at R45.
Walsh cautioned that a similar frenzy will ensue once PSG makes its move to unbundle.
“We probably expect that [share price drop] to happen again when PSG does their unbundling, nevertheless our business strategy remains unchanged,” the CEO said.
Due to the unbundling that was implemented on April 4, Kaap Agri’s shareholder base has risen from 6,000 to 15,000 while the company liquidity has doubled.
Welcoming all new shareholders, the group maintained the change in the shareholding structure would not affect its business model, operations or strategic direction.
Kaap Agri last year sold the property assets of The Fuel Company (TFC) brand in a R446m deal.
So far this year, the company has completed the acquisition of independent fuel retailer PEG, which boasts 41 strategic fuel stations on major highways in SA, expanding the company’s presence in the fuel space.
With an improved balance sheet, the company said it is looking for “quality assets” to add value to its portfolio.
This article has been updated with information throughout.
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