Raising the bar

The release of Distell’s year to end-june numbers next week may be sobering in terms of assessing additional competition in the cider and near-beer niches. Distell’s two cider brands, Hunter’s Dry and Savanna, have carved out a lucrative niche in SA and Africa — so much so that the company ranks as the second-biggest cider producer in the world by volume. It’s common knowledge that frothy profit contributions from Hunter’s and Savanna have buoyed Distell’s profit numbers over the past two decades. In the interim results to end-december 2016 Distell already hinted that the cider party was quietening down, with volumes affected by pricing and, perhaps more worrying, increased competition.

Distell explained that ciders were affected by “trade down” as disposable incomes were under pressure, but it also noted “intensified beer pricing and pack activities in formal channels as well as recent RTD [ready-to-drink] launches”.

Any Distell shareholders who were a little rattled by these admissions will probably need a stiff drink after perusing beer giant AB Inbev’s second-quarter results presentation. A carefully crafted assault on the cider market is quite apparent.

AB Inbev’s SA market segment review, ominously headed “category expansion by ‘near-beer’ development”, referred specifically to niche brands Flying Fish (a flavoured beer), Brutal Fruit and Redd’s, an appleflavoured fruit ale that mimics ciders. Interestingly, it’s the feminine side that is paying off, with AB Inbev reporting that Flying Fish was “recruiting women into the beer category” and disclosing that 80% of Brutal Fruit’s volumes were sourced from female drinkers.

With 100% volume growth, Flying Fish is the highest-growth brand in

SA. It seems clear that with Redd’s, which is growing volumes more than 20%, AB Inbev looks quite determined to blunt Distell’s cider thrust. And here’s the scary part: Redd’s makes above-average margins despite its low price point, which is “designed to compete directly against core ciders and challenge the norm of value.”

Night and day

The recent results from electrical counters ARB Holdings and South Ocean Holdings throw a most peculiar light on the respective performances of their lighting subsidiaries, Eurolux and Radiant Lighting. One might regard these businesses as sharing similar operational profiles — but the respective performances are night and day. In the year to end-june, ARB’S Eurolux produced revenue of R510m (R506m last year) and profit before tax of R48m (R50m last year), despite trading conditions dimming markedly. Over the six months to endjune, South Ocean’s Radiant experienced a marked drop-off in revenue to R142m (from R163m) and it posted a larger loss of R10m. This is a huge disparity in what are fairly similar businesses.

What’s also illuminating is that ARB paid R81m for 60% of Eurolux in 2011, while South Ocean forked out R485m for Radiant in 2007.

Universal appeal

I note Uk-focused investment counter Universal Partners — which has to date only done a fairly small deal in the UK (health-care group and motor maker

Yasa) — has got approval to increase the number of shares in issue by 208m.

This was done with a view to “one or more future private placements”.

It certainly sounds as if something big is afoot. A deal could swing sentiment and reassure the market that the wellregarded prime movers at Universal still have the knack for banking sweet transactions. Having said that, I’m not sure how enthusiastic shareholders will be if shares are eventually issued at current prices. Universal’s shares are trundling along at a low of R15.49, well off the last stated net asset value of R16.77/share. Academically speaking, if Universal did issue the full quota of new shares, it could raise more than R3.2bn — about three times the firm’s market capitalisation.

Distell shareholders will probably need a stiff drink after perusing AB Inbev’s results