Agriculture group Kaap Agri is holding on to its interim dividend as it battles uncertainty around land reform and the Covid-19 pandemic.

Most of the operations of the company, which trades in the agricultural, fuel and related retail markets in Southern Africa, are considered an essential service, but the Covid-19 outbreak has made consumers cautious.

Group profit rose 7.42% to R173m in its six months to end-March, with revenue largely driven by a strong performance by its trade division, which includes its Agrimark stores. Headline earnings per share increased 7.9% to 241.83c, while revenue grew 11.6% to R4.9bn.

Kaap Agri paid an interim dividend of 33.5c per share in the prior comparative period, and the group has about 74-million shares in issue.

Though the rise in profit would seem commendable in a tough environment, Kaap Agri had spent heavily on capital expenditure, mostly into its fuel business, and its R1.7bn debt pile exceeded its R1.6bn market capitalisation, said Small Talk Daily’s Anthony Clark.

“A rapid capex programme over the past years ... has not delivered sufficient capital returns, and fuel in the interim results saw a 4% reduction in profits despite a 4.8% rise in income,” said Clark.

On an annualised basis fuel contributed about a quarter of profit, and Covid-19 may weigh heavily on that part of the business, said Clark. That is in an environment of intense investor scrutiny of companies’ balance sheets, he said.

Kaap Agri said on Thursday it had implemented a number of measures to save cash, including holding on to the interim dividend, but did not go into further detail.

“It is clear that we are moving into a challenging period of further reduced consumer confidence and uncertainty,” the group said. “As a supplier of essential goods and services we will continue to review the way we interact with our customers to ensure we provide a relevant and sustainable offering in a responsible manner,” the statement read.

Kaap Agri’s share was flat at R21.78 in afternoon trade on Thursday, having fallen 28.36% so far in 2020.

Update: May 7 2020
This article has been updated with share price information and industry comment.


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