Back to its roots, with a handy bag of loot

Financial Mail - Investors Monthly - - Analysis - Marc Hasenfuss

Bowler Met­calf is a plas­tics pack­ag­ing group once again. It’s not that the com­pany ever veered off on an ac­qui­si­tions tan­gent, but sen­ti­ment looked quite parched six months ago when it seemed like ef­forts to un­bun­dle or sell its 41.38% stake in niche soft-drink bot­tler SoftBev could be pro­longed.

SoftBev was formed a few years ago from the merger of Bowler-owned Qual­ity Bev­er­ages and Shore­line. Qual­ity fared well in its Western Cape back­yard and Shore­line held its own in KwaZulu-Natal. But find­ing prof­itable trac­tion in the com­pet­i­tive Gaut­eng mar­ket was far more chal­leng­ing.

While the bot­tling as­so­ci­ate was look­ing for some fizz, Bowler found its core pack­ag­ing seg­ment hav­ing to rein­vent its of­fer­ing to main­tain his­toric mar­gins in an op­er­at­ing en­vi­ron­ment thrown some­what into dis­ar­ray by in­creased in­ter­na­tional com­pe­ti­tion.

The con­tention was that shed­ding the bev­er­ages as­so­ci­ate would al­low Bowler to fo­cus ex­clu­sively on its pack­ag­ing. So it was with some re­lief that, ear­lier this month, Bowler fi­nally is­sued a Sens state­ment de­tail­ing the sale of its stake in SoftBev.

The pro­posed deal was prob­a­bly bet­ter than most Bowler share­hold­ers ex­pected. In essence, Bowler looks to bank at least R233m from the sale of SoftBev to pri­vate-eq­uity-backed soft-drinks busi­ness, The Bev­er­ages Com­pany.

The in­dica­tive (read “worst case sce­nario”) value of Bowler’s stake is reck­oned at R233m — but the fi­nal en­ter­prise value will be de­ter­mined by the prof­its achieved by the com­pany for the year end­ing June 30 2018. SoftBev man­aged a much-im­proved show­ing in the in­terim pe­riod to end De­cem­ber, so there is rea­son­able op­ti­mism that the full-year per­for­mance should be sweet.

The fi­nal amount of the pur­chase con­sid­er­a­tion — af­ter tak­ing ac­count of SoftBev’s fi­nal net debt and work­ing­cap­i­tal po­si­tion — could in­clude a de­ferred con­sid­er­a­tion of up to R126m. This sets a price range for Bowler’s SoftBev stake of be­tween R233m and R359m. The com­pany also in­di­cated that in ad­di­tion to the sale of its eq­uity stake in SoftBev, a loan claim of around R79m would also be re­paid.

It seems rea­son­able — al­beit per­haps erring on the side of cau­tion — to as­sume Bowler will bank at least R400m. That’s equiv­a­lent to around 487c/share to Bowler and is cer­tainly a sum that will get share­hold­ers mulling about op­tions for th­ese pro­ceeds.

Of­fi­cially, Bowler CEO Friedel Sass stip­u­lated that the SoftBev wind­fall would be pumped into ex­pand­ing the core pack­ag­ing busi­ness and re­lated prop­erty in­vest­ments. There was also a ref­er­ence to in­vest­ing in new busi­ness ven­tures that “meet the com­pany’s strate­gic ob­jec­tives”.

Sass con­firmed that part of the pro­ceeds would be paid out to share­hold­ers in a cash div­i­dend. The amount would no doubt de­pend on how much new busi­ness the core pack­ag­ing di­vi­sion can rope in dur­ing the next 18 months, and if there are rea­son­ably priced ac­qui­si­tions that could add value. A spe­cial div­i­dend of be­tween 40c/share and 100c/share could be on the cards.

Bowler is one of the JSE’s lean­est and mean­est com­pa­nies (visit their mod­est HQ for con­fir­ma­tion). IM would not bet against it find­ing bet­ter trac­tion in the medium term. At th­ese lev­els we judge it a BUY.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.