Prudent for Bowler Metcalf to buy back shares says activist

Cash-rich Bowler Metcalf makes high end packaging products for most SA companies. Image: Bowler Metcalf

Shareholder activist Chris Logan argued that with Bowcalf's shares drifting back to levels last seen in late 2010 it seemed prudent to mobilise some of the company's cash to buy back equity.

He said Bowcalf's annual report showed capital commitments worth about R5m compared with cash flow from operations of over R100m in the financial year to end June. "How does one reconcile this? Your cash flow is 20 times your capital commitments‚" Logan said.

Chairman Brian Frost said while share buy-back options were reviewed regularly‚ the group already held close to the maximum 10% of the shares that could be bought back in a year in treasury shares.

Logan said it should be a priority for directors to cancel the treasury shares to allow further buy-backs. "With the share price sitting close to a five-year low‚ it looks like a no-brainer," he said.

Lazy balance sheet not wanted

Frost countered that Bowcalf did not want to hold a lazy balance sheet‚ but said there were a number of things for the company to consider in terms of spending on technology upgrades and new production facilities.

Bowcalf's chief executive Friedel Sass said the company manufactured a large number of plastic packaging products in high-LSM niches but volumes had dropped off. "We are actively driving growth in new business. But this is not a quick switch. It takes six‚ 12 or even 18 months for growth to come through," Sass said.

Logan also pressed the board on whether consideration had been given to "spinning off" soft-drinks bottler Quality Beverages (QB).

He said as a standalone venture QB would extract more operational synergies with other niche bottlers and allow Bowcalf to extract value for shareholders.

Sass said that while consideration had been given to spinning off QB at board level the company had not made that decision yet.

Former chief executive and current non-executive director Mike Brain said QB's contribution to Bowcalf's mainstay plastics packaging operations was huge.

"There might be a temptation to sell QB‚ which would make the balance sheet look great and perhaps see a special dividend. But it would leave a giant hole for the company," he said.