Back to its roots, with a handy bag of loot

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.