WATCHLIST IDEA: KAP INDUSTRIAL

Some companies fly under the radar, until they don't

KAP Industrial Holdings Limited (KAP) is a diversified group consisting of leading industrial, chemical, and logistics businesses. KAP operates in 11 countries in sub-Saharan Africa. At present, 86% of revenue is generated in South Africa, while 14% is generated in the other markets like Botswana, Kenya, Madagascar, Namibia etc.

KAP has 5 Major Divisions & Brands

SUPPLY CHAIN Unitrans   A supply chain-based services company, providing customised solutions to clients in a diverse range of sectors, including food, agriculture, petrochemical and mining.

POLYMERS Safripol A producer of polymers, which are used in a broad range of applications in sectors such as packaging, agriculture, automotive, telecommunications and medical.

TIMBER PG Bison A producer of wood-based decorative panels, which are used for interior applications in home, work and social environments.

AUTOMOTIVE Feltex A manufacturer of automotive components, which are used in the assembly of global vehicle brands, and automotive retail-aftermarket accessories.

BEDDING Restonic A producer of sleep products sold in the retail sector under brands such as Restonic, Green Coil, iDream and various retail house brands.

The Numbers Make Sense

Diversified businesses tend to be recession resistant. If one area fails, another is potentially there to pick up the slack. KAP also has an exceptional management team, led by Chairperson, Patrick Quarmby.

In implementing our strategy, we prioritise revenue growth, market differentiation, operational excellence, and enhanced shareholder value, said previous chairperson, Jaap du Toit.

I first started taking notice of this little R11 billion business over the pandemic. They navigated the Covid-19 environment really well, has a strong balance sheet and healthy cash flows. The 2021 results were the final proof needed that KAP is a business to at least add to your watchlist.

Revenues for 2021 were up 13 % and profits soared 43%. The operating profit and margin performance were due to strong growth in the PG Bison and Safripol divisions. With a number of growth and expansion plans in the pipeline, KAP forecasts it will continue on the momentum built this year well into the next.

Debt increased year-over-year due to continued investments, acquisitions and share repurchases. This is a number I would watch very closely as the company grows through expansion and acquisitions. The cash flow from the new businesses essentially needs to pay down this debt and then some.

I will be keeping a close eye on KAP and how they perform over the next 2-3 years. The July 2021 unrest had an impact on the business and touch wood, we do not see a repeat of that in 2022.

Disclaimer: Nothing in this article should be seen as financial advice. Everything stated is for educational purposes. Only opinions are expressed.