MARKET WATCH MARC HASENFUSS

My career as a financial journalist started somewhat reluctantly in the late 1980s. I wanted to work for the but generous starting salary offer of R2 000/month was more sensible for paying back student loans. I caught the tail-end of the late 1980s listings boom, and have a soft spot for the handful of counters still around and thriving — like Bidvest, Spur, CMH, Mediclinic and Grindrod. Naturally — as I gravitated towards Cape Town — my favourite late-1980s listing was plastics packaging company Bowler Metcalf. Early AGMs were hosted in a makeshift boardroom in noisy factory premises — the share price then around 15c. Last week I attended the Bowcalf AGM, and after 20 years was amazed to see the company has commendably retained all its modest trappings. The Otterybased head office is functional with a capital F, and the boardroom is situated right inside the factory so that the production clatter can be heard above the measured AGM formalities. It’s clear that after 25 years on the JSE — and an enviable track record that would put most small cap counters to shame — Bowcalf has not got soft. But what worries me is that a business as spartan as Bowcalf has in recent years battled to generate the kind of returns its shareholders have become accustomed to. And I’m thinking if Bowcalf can’t make a decent return, then heaven help other SA-focused manufacturing industries. While Bowcalf’s quandary is partly caused by increased labour and energy costs, there is an element of being caught off guard by changing packaging sector dynamics. Bowcalf tends to manufacture products for more affluent products distributed by multinational consumer brand leaders. Demand for these “spoil yourself” items has slacked off, and multinationals are looking to recoup margin by resisting price increases from manufacturers. So Bowcalf is rejigging its business model by looking for new packaging opportunities, hopefully helped by a weaker rand making local manufacturing more feasible. This, however, is an 18- to 24-month push, and Bowcalf is likely to endure further profit pressure for a while. Punters wanting exposure to the packaging sector will now find a “sexier” alternative in Nampak, which six years ago was deemed a bogged-down dinosaur. Amazing what latching onto African opportunities can do for sentiment. I somehow doubt we’ll see Bowcalf venturing north any time soon, but if the share price ventures further south there could be an opportunity to accumulate a quality counter on a longer-term view.