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Picture: 123RF/grigorenko
Picture: 123RF/grigorenko

BUY: KAL Group 

KAL Group, formerly known as Kaap Agri, is up 27% year to date. But despite the price action, this retailer — with interests in fuel retailing, general retail and convenience stores — still trades on an earnings multiple of eight.

Diversification of the business model over a decade has reduced its agricultural dependence to profit to 29% and with a solid track record of earnings growth, the stock remains undervalued. The past year has been tough.

Interim results saw earnings growth of 7.3%. Full-year results to September 2024 may be flat at best and this may weigh on KAL in the short term. The balance sheet remains robust with 50% gearing.

With economic improvement expected with lower interest rates, lower fuel prices and an uplift in agricultural sector output in 2025, KAL should return to steady earnings growth supported by a low earnings multiple. The target price is R58, giving a return of 16%.

SELL: Zeder 

Agricultural investment company Zeder is a shadow of its former self, with management having unbundled, sold or being in the process of unwinding the entire portfolio. Zeder’s heyday was more than a decade ago, when it unlocked value within the sleepy agricultural sector. With the portfolio now valued at R3.3bn with a market valuation of R3bn, the current discount is 9.1% — from a peak discount of 60%.

Asset sales of Pioneer Foods, the unbundling of KAL Group and recent sales of the apple and pear remnants of Capespan have whittled the portfolio down to one main investment in general agricultural and seeds business Zaad.

Excess cash has seen a series of special dividends paid to shareholders. Zaad may be a tougher sell due to its composition and debt.

A slow piecemeal sale may lie ahead, further dragging out future dividends. Unless shareholders are patient enough to await the final asset sale and dividends, Zeder is now dead money. 

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