Thinking outside the package pays dividends
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