CA&S Group delivers
CA Sales Holdings, or CA&S (Collaboration Activation & Sales) Group, is a collective of fast-moving consumer goods (FMCG) retail solution businesses with operations across southern Africa. These businesses offer route-to-market services to leading domestic and international manufacturers and brand owners of Consumer Packaged Goods (CPG). The group was founded in 2012 with the purchase of CA Sales and Distribution in Botswana, a business that had already been in existence for 40 years. Over the years, the group has made numerous acquisitions of founder-run entities across Africa. These businesses, which encompass retail execution and advisory as well as logistical services, have deep in-country roots, long-standing trading relationships with major multinational manufacturers, and a solid track record of delivering for clients.
The group first listed on the Botswana Stock Exchange (BSE) in 2017, then pursued a listing on the Johannesburg Stock Exchange (JSE) in June 2022- this was a transfer of its smaller-scale listing on the Cape Town Stock Exchange (CTSE) in tandem with its planned unbundling from majority shareholder, PSG Group, who had acquired CA&S in 2016.
Operating markets
The group operates in eight southern African countries, with broad trade coverage from informal and convenience segments through to formal and corporate stores across all major centres. The group works closely with its clients to solve trade obstacles and move their brands and products through cross-border supply chains, from manufacturers to the store aisles of the more than 35 000 strong retail outlets that it services. In that way, they build brand presence, ensuring products are available, visible, and promoted to shoppers, while growing their respective market shares across the continent.
Leadership intends to expand the group's geographic footprint significantly into East Africa through acquisitions. They also plan, as part of the channel broadening strategy, to explore partnerships with private label brands and exclusive new brands in key geographies.
Given prevailing macroeconomic, political, and social risks of their different target geographies, the business takes a cautious approach when entering new markets, hailing local partnerships as a key stepping-stone for success. CA&S builds relationships with tier 1 brand owners that enables it to benefit from a balanced and resilient portfolio in the face of short- and long-term changes in consumer behaviour due to the economic cycle. These blue-chip clients are manufacturers or producers of consumer products including food (frozen food as well as snacks and confectionaries), personal, home and pet-care products, consumer durables, paper products, soft drinks and alcoholic beverages, tobacco products, and accessories.
Macro Overview
Across the groups operating markets, growth is exposed to volatile global and local market developments. Consumers' spending power and appetite remains a key concern amid tighter economic conditions. High costs due to elevated inflation and high interest rates, coupled with socio-political risks (protests, physical asset destruction and looting) as well as infrastructure challenges and energy insecurity (rolling power blackouts) in certain markets, impact business confidence and investment.
However, demographic changes including urbanisation and population growth across sub-Saharan nations, as well as rapid technological enhancements to the front and back-end of the sector, means that the retail industry and its consumer base will continue to expand. CA&S is well-positioned to benefit from this growth, being particularly well geared to benefit from increasing digitisation of e-commerce and the evolution of 'smart' supply chains enabled by AI, and as the development of online sales remains in its early growth stages across the markets it operates in.
While the group operates across southern Africa, it is mostly exposed to the Botswanan economy and, by direct and indirect implication, the South African market (which is a major trade partner to its surrounding nations) despite its lower revenue contribution to group sales. While GDP growth in Botswana is projected to moderate to ~4.0% in 2023 (2022: 5.8%), household consumption will remain robust even as credit markets tighten further. In essence, Botswana is amongst the fastest growing markets within sub-Sahara- compared to SA with a forecast GDP growth of 0.2% for FY23 (FY22: 1.9%). Botswana also boasts a stable political environment, with little to no unrest, and no power interruptions. CA&S is a major player in the retail sector between these markets, which remains supportive of the group's long-term prospects.
Management
CA&S group is run by a strong management team with extensive experience and expertise in the FMCG industry and underlying business segments across southern Africa. The businesses in the group have operations dating as far back as the 1970s, all with their own professional management teams. To date, the group has made strategic acquisitions of founder/owner run businesses, absorbing into the greater structure, entrepreneurial leaders with intimate knowledge of their respective markets and the FMCG landscape.
Financial Performance
Operating Segments
The group's primary services include warehousing and various models of distribution (~85% of group revenue), as well as retail execution and advisory services which encompass sales, merchandising, shopper marketing, enabling technology and data solutions, brand promotion and activation, training as well as selected debtor services, category consultation, and key account assistance.
Earnings
In FY22, the group reported HEPS growth of 31% y/y as the Covid-19 recovery continued to play out. We anticipate more normalised growth going forward, although risks to forecasts due to global recession fears remain. In recent results for the first half of 2023, the group posted HEPS growth of 21.5%, in line with guidance, to 62.74 cents. This was supported by good organic growth from all operations as well as the successful onboarding of new clients.
Revenue
The group has made progress on its strategic objectives of extending new services to its existing client base, while expanding into new geographies and on-boarded new clients (the biggest being newly listed Premier Foods). This underpinned double-digit growth across key financial metrics in FY22. Revenue increased 18.2% y/y to R9.5 billion, despite global economic pressures, prevailing geopolitical tensions, and tighter economic conditions. While total growth was mainly driven by inflation (11.5%), new business (3%) and volume growth (3.7%) also contributed positively despite pressure on consumers.
Costs
Operating expenses have been on the rise (FY22: +19.4% y/y) on the back of increased investment in staff and IT spend, as well as increased travel expenses as business travel recovered to normal pre-Covid-19 frequency. Additional costs were incurred during FY22 due to the listing on the JSE, the impact being once-off.
Margins
CA&S' implementation of cost containment measures through digitisation and internal efficiencies have proven supportive in recent years. The improvement in the gross margin from 14.2% to 15% in FY22, as well as the increased contribution from the share of associates' profits, resulted in a 32.4% y/y growth in operating profit. The operating margin expanded to 5.6% for the year, from 5.0% in FY21.
Balance sheet
The group had a net cash position of R50.5 million by the end of FY22, which compared to R15.9 million in the prior year, driven by robust cash generation. This was supportive of returning value to shareholders through dividends during the period. A final dividend of 15.35 cents per share, up 30% y/y, was declared. During 1H23, the group generated strong cash flow from operations, increasing net cash resources to R590.4 million (1H22: R459.4 million) at the end of the period.
Overall, the group's results paid good testament to the resilience of its business model, cautious capital allocation strategies, sound balance sheet management, and stable cash generation.
Outlook
The macro environment is expected to remain challenging near term. However, the group remains undeterred by the higher operating risks, with a focus on the implementation of high-impact initiatives that will facilitate the establishment of new partnerships with clients and retailers, and in that way, unlock additional value in the core business.
Management expects disruptions in global supply chains to continue, with ongoing levels of economic uncertainty to remain compounded by the impacts of the war in Ukraine. However, the group remains confident that CA&S will continue to build on the resilience that underpins its history, aided by the diversity of its portfolio, the strength of its balance sheet, and the quality of its leadership team and workforce.
While the focus remains on growing the business organically, leadership will continue to consider strategic acquisitions in existing and new jurisdictions, where opportunities for such may be present to support its service offering and/or improve its geographic footprint- with a focus on expanding into East Africa.
Investment case summary
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