Distell’s toast to growth in Africa
Liquor group sets ambitious target for sales on the continent
● JSE-listed liquor group Distell, the world’s second-largest cider producer, has aspirations of becoming an “African champion”, saying its business on the rest of the continent has the potential to double in size as a percentage of revenue in the coming years.
Speaking after the release of results for the year ended June, CEO Richard Rushton would not be drawn on time-frames for Distell achieving this goal, saying the main factor in doing so will be how quickly the continent’s economies grow in the wake of the Covid-19 pandemic.
South African investors are eager for a new corporate champion in the vein of SABMiller, one of SA’s greatest international success stories.
Although Rushton, who was an executive at SABMiller for more than 15 years before taking up his position at Distell in 2013, shied away from comparisons with the brewing giant, he believes Distell can replicate “a pretty good story of growth in SA” on the rest of the continent.
“I wouldn’t like to make comparisons directly with SABMiller because we are a business at a different time, in a different place and a different competitive reality.
“Certainly we can be an African champion, there’s no question about that, and we certainly have the portfolio and the growing track record now, and brands and people to pursue a growth agenda on the African continent. I say this with great confidence.”
He also believes that while the global alcohol market is “very competitive”, Distell’s offerings across categories and price points stand it in good stead, as does the fact that its products appeal to women consumers in the rest of Africa and SA.
Distell is already Africa’s biggest wine, cider and spirits producer, making Nederburg wines, Savanna cider, Klipdrift brandy and Amarula liqueur.
The rest of Africa accounts for 17% of the group’s R22.4bn revenue, and Rushton says he would like to see this move north of 30%.
SA currently accounts for 70% of the group’s revenues, with other international operations accounting for 13%.
Apart from SA, the company has manufacturing facilities in Zimbabwe, Tanzania, Angola, Kenya and Nigeria, and is planning a new facility in Mozambique.
But the rest-of-Africa expansion will not come at the expense of SA.
“SA is a critical home market where we have about a 20% value share of the market. It is absolutely critical we shore up and stabilise our South African business.”
Although the worst appears to be over for liquor producers with the government ban on the sale of alcohol being lifted under lockdown level 2, the earlier sales prohibition hit Distell hard.
The group estimates it lost R4.3bn in revenue while its profits dropped more than half, to R394.6m, in the year ended June.
All Weather Capital, which bought 1-million shares in Distell in the past month to bring its stake in the company to 0.5%, believes the group has strong potential.
The fund manager’s chief investment officer, Shane Watkins, says: “Distell is a national champion and there are just so few businesses that are national champions. After Heineken with Strongbow, they are the second-biggest manufacturer of cider in the world and the biggest in Africa. They have very successful international brands and they are a flag carrier for SA.”
Watkins says the group is a “good company in a good industry with good management” and that fund managers seldom come across stocks that “tick all three boxes”.
“The growth opportunity for Distell is exporting into the rest of Africa and into the rest of the world including the US, Europe and the Far East. There are not many South African companies that have a growth narrative, and their market share offshore is minuscule so there is massive potential.”
Watkins says the weak rand also helps Distell, giving it an edge on price against foreign competitors.
Rob Forsyth, investment analyst at Ninety One, which also holds Distell shares, says in SA the group has a “good track record of incrementally taking market share”.
Forsyth says while trends around the world show that alcohol markets are beginning to “fragment” with the proliferation of newer brands, Distell should hold its own.
“We think Distell has done an excellent job in improving their manufacturing base, their route to market, their ability to brand and their innovation,” Forsyth says.
“As a result we think they are going to be able to stay abreast of those trends and incrementally keep on adding to market share with slightly newer, innovative products,” he says.
Not many South African companies have a growth narrative
Shane Watkins
CIO, All Weather Capital