Think­ing out­side the pack­age pays div­i­dends

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here are not many small cap coun­ters able to gen­er­ate the con­sis­tent cash flows needed to pump out div­i­dends an­nu­ally for two and half decades.

Peren­ni­ally prof­itable plas­tics pack­ag­ing spe­cial­ist Bowler

TMet­calf can make this claim — though the mar­ket, ad­mit­tedly spooked by the in­creas­ing odds faced by lo­cal man­u­fac­tur­ing en­ti­ties, seems to care less about hard earned rep­u­ta­tions.

Bowler is these days treated with far less adu­la­tion — trad­ing on a mod­est 10 times earn­ings mul­ti­ple and tagged with a typ­i­cally “ex-growth” div­i­dend yield of 4,5%.

Though Bowler’s op­er­a­tional ethic re­mains lean and mean, the com­pany has suf­fered what CEO Friedel Sass calls a con­spir­acy of cir­cum­stances.

These cir­cum­stances re­fer to in­tense pric­ing pres­sure in the plas­tics pack­ag­ing mar­ket, forc­ing Bowler to shift away from a long-stand­ing con­tract with con­sumer brands gi­ant John­son & John­son (J&J).

At roughly the same time, some of Bowler’s des­per­ate com­peti­tors started pric­ing their ser­vices at dan­ger­ously low (and un­sus­tain­able lev­els).

In other words Bowler faced a Catch-22 sit­u­a­tion; find­ing ap­pro­pri­ately priced new busi­ness to re­place the large J&J con­tract at a time when its com­peti­tors were in the mar­ket markedly dis­count­ing their ser­vices.

If these cir­cum­stances weren’t tricky enough, Bowler — now keen to fo­cus more in­tensely on its pack­ag­ing oper­a­tions — took the de­ci­sion to merge its soft-drink fill­ing oper­a­tions that were held un­der Qual­ity Bev­er­ages (QB) into a new-look R1,2bn a year soft-drinks bot­tling busi­ness called SoftBev. Bowler holds a 43% stake in the en­larged en­tity with an in­ter­est­ing na­tional niche — ideally too small to bother Coca-Cola but big enough to yield sweet re­turns.

How­ever, the ben­e­fit of an in­flu­en­tial share­hold­ing in an en­larged and more prof­itable soft-drink en­ter­prise was off­set by the loss of the bot­tle blow­ing con­tract (which will now be un­der­taken “in-house” by SoftBev). Bowler does keep the pre-forms sup­ply con­tract with the old QB oper­a­tions, but stands to lose al­most R25m in op­er­at­ing prof­its from giv­ing up the blown bot­tles agree­ment from Septem­ber this year.

At a re­cent AGM, Bowler gave some in­di­ca­tion of how its en­deav­ours to re-engi­neer the core pack­ag­ing busi­ness were pro­ceed­ing. Sass, not known for mak­ing sweep­ing state­ments, said there was still a mas­sive op­por­tu­nity for spe­cial­ist plas­tics pack­ag­ing com­pa­nies in SA.

He said the “rigids” mar­ket had vir­tu­ally col­lapsed, with com­pa­nies caus­ing their own demise with ir­re­spon­si­ble pric­ing. He said gaps were ap­pear­ing in the mar­ket, which was “look­ing very in­ter­est­ing”. Whether Bowler could em­bark on cor­po­rate ac­tion, per­haps buy­ing

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