Upbeat earnings forecast from KAP could finally exorcise Steinhoff ghost

Key topics:EPS/HEPS set to rise over 20% as capex cycle endsPG Bison’s new MDF line fully utilised; auto unit reboundsFocus shifts to deleveraging and fixing underperforming divisionsSign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here. .BizNews Reporter.For years, KAP Limited was the industrial engine room buried deep within the convoluted structure of the Steinhoff empire. It was the "good business" stuck in a bad neighborhood. Since its unbundling and independence, the group has worked to forge its own identity, shedding the ghosts of the Markus Jooste era to stand alone as a proxy for South African industrial activity.This morning the signalled its heavy lifting is starting to pay off. In a pre-close operational update that will likely cheer value investors, KAP announced that it expects earnings per share (EPS) and headline earnings per share (HEPS) to rise more than 20% for the six months ending 31 December 2025.The Capex Cliff is Behind UsKAP’s narrative over the last two years has been dominated by a massive capital expenditure cycle — specifically the expansion of PG Bison. Management poured cash into a new medium-density fibreboard (MDF) line, a move that temporarily depressed earnings through startup costs and capitalised interest.That cycle has now turned.The company reported that the "effects of these issues have since eased." PG Bison, jewel in the KAP crown, is now seeing its new capacity fully utilised. While the group admits export margins are lower than domestic ones, the sheer volume of product moving out the door has driven revenue and operating profit "meaningfully higher."For the BizNews tribe, this appears to be a classic case of short-term pain for long-term gain. The factory is built, the machines are running, and the cash should now start flowing back into the balance sheet.Cars and Chemicals: A Mixed BagThe update highlighted the diverging fortunes of KAP’s other major divisions.Feltex, which supplies components to the automotive sector, has bounced back. After a miserable prior period plagued by operational halts at two major Original Equipment Manufacturers (OEMs), domestic vehicle assembly volumes have improved. When the car factories in the Eastern Cape and Pretoria are humming, Feltex makes money.However, polymers division Safripol remains the problem child. The global chemicals industry is in a cyclical trench, suffering from massive overcapacity. With pricing power subdued, KAP was forced to shut down its PET plant in Durban for five weeks just to clear inventory. Management’s message is blunt: earnings here are "meaningfully lower."The Debt DietPerhaps the most encouraging signal for conservative investors is the group’s focus on the balance sheet. With the big spending on PG Bison over, focus has shifted to debt reduction.KAP is targeting to cut its debt by R500 million in FY26.This is a crucial pivot. In a high-interest-rate environment, deleveraging is the smartest way to boost earnings. The company has also successfully extended its R2 billion revolving credit facility to 2028, suggesting its bankers remain comfortable with the credit risk despite the volatile trading environment.Strategic Shifts and New LeadershipThe update comes amidst a changing of the guard at the top. Frans Olivier took the reins as CEO on 1 November 2025, with Dries Ferreira stepping in as the new CFO in February.Their mandate is clear: fix the laggards. The logistics arm, Unitrans, has long been a drag on the group's return on capital. The update notes low-margin contracts are being terminated, and there is a medium-term target to get Unitrans to an operating profit of R700 million.The Bottom LineKAP’s update is a reminder that in the world of industrial heavyweights, timing is everything. The global environment remains hostile—management explicitly cited the "United States' tariff war" as a source of uncertainty.Yet, by moving past its heavy investment phase and fixing its operational hiccups in the auto division, KAP could be entering a harvest period. For a stock that has often traded at a discount to the sum of its parts, a 20%+ jump in earnings may the catalyst investors have been waiting for.

Upbeat earnings forecast from KAP could finally exorcise Steinhoff ghost

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