Small-cap speciality packaging stock Bowler Metcalf has reported results for the year ended June that were the best operational result in its history, with bumper earnings in a time CEO Friedel Sass called “a period of restoration”.
The company reported revenue 20% higher at R861m, driven by significant growth of 20% in the plastics division. Profit before tax rose 58% to R146m with headline earnings up 57% at R161.38 a share. A juicy final dividend of 37.8c a share was paid, the largest yet by the company, for a total of 61.8c a share for the full year.
By returning to its core area of expertise within specialised packaging, and with a strong pedigree for engineering and production efficiency, Bowler has been revitalised.
New markets and opportunities have opened up and Bowler is grasping them. Hefty investment in new machinery, moulds and processes alongside alternative energy solutions to counter Eskom’s unreliability saw the company stretched to the seams as customers came to it for solutions … which it delivered.
The business is now running at full capacity and utilisation — at times employees were working 24/7 to fulfil orders from its fast-moving consumer goods clients. Bowler has grown its order book, with one particularly large contract worth R600m over three years, a testament to its positioning and can-do attitude.
This success, naturally, means a period of above-average capital expenditure — which Sass says is “to focus on growth opportunities”. With cash in the bank at year-end of R226m, equivalent to 302c a share, Bowler has sufficient headroom for what will be an intensive period of expansion ahead.
Sass said R85m will be spent on upgrades and a further R150m will be invested in a property in Gauteng as Bowler, to get closer to its market and customers, expands out of its Western Cape heartland. It also has its sights on KwaZulu-Natal.
Sass sparked shareholder enthusiasm late in 2023 when he injected a new sense of purpose into the company, and at the latest results presentation he positively fizzed with new growth plans, a mood IM has not seen at Bowler for years.
Bowler has evolved since 1996 from being a manufacturer of plastic bottle caps. It diversified into bottling carbonated soft drinks and has since returned to its core plastic business.
At the latest results presentation he positively fizzed with new growth plans, a mood IM has not seen at Bowler for years
With economic softness and extended load-shedding, Bowler went into a period of stasis with lacklustre results. Clearly, the company is now entering a new dynamic for future growth. But management cautions that though capex will spur capacity utilisation, until the fixed costs are recovered there will be a period of margin squeeze as Bowler grows into its increased capacity.
The next couple of years could see more subdued earnings growth. This adds a degree of wariness until the fruits of its labours are harvested. Caution might be prudent at this juncture.
Still, the company has been buying back shares where it can. It purchased some scraps in financial 2024, spending R15,000 at an average of R10.88 — which illustrates the tight trading. Sass said further buybacks up to R25m would be undertaken should scrip be available. If shares cannot be repurchased, Bowler will consider special dividends.
Bowler has been a favourite of IM for some years. This columnist recommended the stock in September 2023 at 800c and IM editor Marc Hasenfuss wrote of it approvingly in February 2024 after the interim results presentation. At R12.50, the counter has performed well.
There is pride and passion in the family-owned and -managed company’s engineering and manufacturing prowess. IM has in the past praised the management and cannot fault its execution.
There might be a difficult period ahead in the short term, not only because of the hefty capex planned but also because above-average inflationary costs and high freight costs will create margin pressure.
The company has indicated that the first quarter of the new financial year was slightly softer than expected, with the business “looking positive but not as good as we wanted”. However, management was optimistic about prospects for the rest of the calendar year.
Bowler Metcalf is a small-cap gem despite its illiquidity. New growth vectors are ahead in terms of expansion and possible small bolt-on acquisitions. However, based on management’s views, IM has to rein in its guidance and place a hold on the stock.
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