GROWTH STRATEGY
KAP shares surge as it announces it is on track for Safripol R4.1bn purchase
KAP INDUSTRIAL Holdings’ share price surged on the JSE yesterday morning after it announced that it was on track to purchase Johannesburg-based plastics manufacturer Safripol Holdings for R4.1 billion.
KAP’s shares traded 6.34 percent higher in the morning before retreating to close 3.05 percent higher on the day at R6.75 after the companies reached an agreement for KAP to buy the entire issued ordinary share capital of Safripol.
KAP, whose biggest investor is Steinhoff International Holdings, will buy Safripol in cash, on a debt-free basis, from Rockwood Private Equity, Thebe Investment and management in a transaction that is expected to be completed by January. Safripol will form part of KAP’s diversified chemical division, which already includes its Hosaf and Woodchem businesses.
“The Safripol business operates in the chemical sector and produces complementary products to those of Hosaf, with a similar business model. “The transaction represents an ideal fit for KAP in terms of its key investment criteria,” the company said in a statement.
Steinhoff raised its stake in KAP in 2012 in exchange for industrial assets.
It has since moved on to bigger deals, including an agreement this week to buy Mattress Firm of the US for about $2.4 billion (R32.5bn).
Growth strategy
During the company’s interim results in February, chief executive Gary Chaplin said KAP would continue to focus on Africa for its growth strategy. “We already have 32 percent of our revenue coming from Africa, so there is an opportunity for growth there.”
Kap Industrial has two main divisions: the diversified industrial division and the diversified logistics unit.
Diversified logistics includes passenger transport, as well as specialised logistics services in the petrochemical, agriculture, mining, infrastructure, foods and specialised warehousing sectors, while diversified industrial covers operations in timber, chemicals, automotive components and integrated bedding.
The group reported R8.2bn revenue in its last half-yearly results.
Peter Takaendesa, a portfolio manager at Mergence Investment Managers, said the transaction was in line with KAP’s stated strategy of diversifying their local manufacturing operations and acquiring businesses with strong market shares.
Takaendesa said KAP had a solid track record in operating manufacturing businesses and was already exposed to the plastics market through its dominant Hosaf business, which was the only local producer of virgin polyethylene terephthalate, or PET, used in plastic packaging containers.
Cannibalisation
“KAP has indicated that… Safripol produces complementary products and we therefore do not expect cannibalisation of the existing operations,” Takaendesa said.
“Based on the numbers disclosed in the announcement, KAP appears to be paying a reasonable valuation for Safripol and we expect the transaction to be earnings accretive,” he said.