A turnaround is brewing
Licence granted and possible distribution deal with Heineken in offing
AWETHU BREWERIES, the longsuffering JSE-listed beverages group, needs to shake off its lingering hangover and brew a convincing recovery strategy before the market writes the share off as another small cap dreg. But Awethu, whose shares have dribbled as low as 1c on the JSE, is – despite its financial woes – attracting some attention. And that attention isn’t just from pennystock punters…
Its competitor – United National Breweries (UNB), formerly known as National Sorghum Breweries and one of SA’s largest sorghum beer producers – quietly attempted to acquire the entire Awethu group. But Awethu’s major shareholder rejected UNB’s R6,5m offer. Tony Ford, Awethu’s MD and main shareholder, says: “The offer was definitely too low.” If the offer had been attractive, Awethu would have become part of a niche brewing company that generates more than R700m in turnover.
Some shareholders may argue that a spectacularly unprofitable Awethu would be best tucked away in a bigger group. But maybe Ford deserves the benefit of the doubt – though it will be no easy task to put Awethu back on a sustainable profit footing. Historical problems at Awethu have already resulted in institutional investors trimming their combined interest from 20% to 9%. Those investors include Brait, Old Mutual and Sanlam.
Awethu has also been plagued by further “misfortunes” over the past few years. Luckily, last year it resolved R7m litigation against it. “That’s off our back,” says Ford, but wouldn’t elaborate how it was resolved.
A slow process in securing a licence from SA’s National Liquor Board has also harmed the group. Ford says the period of applying for the licence (ie, opportunity cost) had hurt the group more than the price paid for the licence.
The licence has since been granted, and Ford has reason to look forward to a promising future. As a main shareholder, Ford is (perhaps understandably) confident of turning Awethu around. To build up a strong
This year the group should be able to show a profit for the last five months of its financial year to
and competitive business, Ford is personally going to inject R1m cash into its working capital and R200 000 for equipment at its Vanderbijlpark plant.
Says Ford: “We expect to generate R500 000/month in revenues. We’ll increase that over time.” Ford’s cash injection would seem to signal that management is positive about the group’s future.
Good news for Awethu is that one international company is already interested in working with it. The Heineken group wants to grow its brands in SA to compete against SABMiller and has approached Awethu to distribute its prod- ucts. “They (Heineken) approached us last week,” says Ford. Both parties are now in discussions to facilitate a distribution agreement.
Ford adds: “We also have a few contracts lined up. The business is in good shape.” He adds that this year the group should be able to show a profit for the last five months of its financial year to end-June 2007.
The group also says its Vanderbijlpark plant is improving and “will give impact to the bottom line”. The Awethu group employs 60 people and pays around R180 000/year in JSE listing fees.
During the troubled time waiting for the Liquor Board to grant it a licence, Ford says the company didn’t retrench any staff. “We were getting a bit of rental from our prop- erty to sustain overheads,” he says.
Despite Ford’s claim that the business is in good shape, a glance at the group’s historical price:earnings ratio paints a different picture. The group, which is sitting on a R4m market capitalisation, is trading at a p:e multiple of a negative 9,8, which reflects historical losses since 2004. Ford acknowledges that isn’t good but that “definitely the situation will change”.
Hopefully, the licence, Ford’s R1m for working capital plus the possible distribution deal with Heineken will entice more punters to take notice of Awethu’s potential.
Perhaps some easy money has already been made on Awethu’s new operational strategy, with the price trekking close to 10c/share at the time of writing.
At that level we wouldn’t dare suggest Awethu’s a small cap alternative to gargantuan SABMiller – but it’s a damned sight better than the “priced-for-disaster” 1c/share level it was trading at not so long ago.