Syrupy speeches for sweets listing hard to swallow
IF DAVID Shapiro had gushed any more when introducing the investor presentation made by Afribrand, we in the front rows should have been emotionally overwhelmed.
"We've been swamped for shares, not by the northern suburbs types but by institutions and even foreign investors," said joint sponsoring broker Société Générale's Shapiro.
"It is the right company, in the right market, with the right management."
Sweets and snacks group Afribrand lists 104.4-million shares in the food sector on August 5 after a preferential placement of 3-million shares and a public offer of 10-million which closes this Wednesday.
Prior to these offers, 22-million shares were placed privately with individuals, pension funds and institutions.
All the shares were issued at 100c and there are a billion authorised shares - a sure sign of paper acquisitions to come: chief executive Stephen Weir advised the journalists to keep a bit of space open. He says anything that sells from a hawker's table is a potential target.
Of the proceeds, R15-million will settle debt, R6-million will upgrade production facilities and R14-million will be available to pursue opportunities.
Afribrand, incorporated only two months ago, comprises a portfolio of sweet and snack manufacturers. Moonlite, Sweet King and Gravara have become wholly owned subsidiaries and their existing managements equity participants in Afribrand. Moonlite is the largest and will account for more than two thirds of the turnover; Sweet King and Gravara broadly share the balance.
Most of the Afribrand brands are not instantly recognisable to middle-class South Africa: the target market is unashamedly the lower end: Astor, Family Favorite, Save Rite, Droolers, Bimbo, Springbok, and Kandy King are but a few.
Afribrand's products are distributed across the spectrum, from large wholesalers and cash and carries to hawkers' stalls, spaza shops, supermarkets, community chains of supply and cafés. Afribrand's promotional material mentions a target market of 600-million continental inhabitants driven by a strong sense of brand loyalty.
Afribrand is the brainchild of Weir, whose family has been involved in the cash and carry trade for 135 years. While a student, Weir wrote a thesis, The development of the informal sector in the Ciskei, with special reference to hawkers' trade, from which experience he now draws. Richard Blumberg is the only other executive director. The board comprises lawyer Michael Judin as chairman, Herdbuoys' Peter Vundla, former Checkers man Clive "twolly for twolly" Weil and accountant Charles Kahan. All six, dressed in Mandela shirts which not only matched each other but also the curtains in the Wanderers' club ballroom, attended the presentation/pre-listing party.
Weir estimates the sugar confectionery market at R3.5-billion a year, and Afribrand's share at 2% - nevertheless the fourth largest after the big trio of Cadbury, Beacon and Nestlé.
He says the average annual growth in sugar confectionery at cash and carries is 25%, and 40% at the lower end.
There are high barriers to entry because of cost, experience and brand-building: "There would be no change from R30- or R40-million to replace Afri-brand's factories."
Weir says Afribrand's sweets are hawker-friendly: individually wrapped for display on their tables. Hawkers buy gross bags and sell them individually. Salted snacks turn over R1.4-billion a year, chips making up 40% of the market. Afribrand is small here, but packs Bimbo chips in 30g and 150g bags for price advantage (chips are usually sold in 250g or 500g bags).
Weir says Afribrand undertakes limited advertising: many consumers have no television. "There is some radio advertising, but the best way is by grass-roots marketing, word of mouth and our price differentiation."
He outlines the group's competitive advantages: entrepreneurial business units, low cost structure, cheaper products, established brands, experienced management, strong trade relationships and focused distribution.
"As a result, Afribrand is unable to meet current demand for products. We have only 11 hours of finished stocks on our shelves at Gravara. What's made in the morning goes out in the afternoon and what's made in the afternoon leaves the following morning."
Operating as a group brings advantages too: Weir says a 10% to 15% saving will be effected on glucose purchases alone. Experience in overcoming problems at one factory has also been applied to the others.
On a pro forma basis, Afri-brand turned over R46-million and made R7.2-million net income in the year to May 1997. In the balance sheet, Afribrand has R12.9-million of equipment, R27.4-million net current assets and R22.9-million in trademarks and brands - a valuation which raised eyebrows at the presentation. Weir says the marks were valued independently by a specialist: "They are the key to our business," he reasons.
The R22.9-million exceeds by nearly R5-million the amounts given as consideration for the three acquisitions: unissued shares and a slip in the prospectus account for the difference.
Afribrand forecasts turnover of R75-million, net income of R10.1-million or 9.4c diluted earnings a share, with a 2.4c dividend for the financial year to May 1998.
Management holds 55% of Afribrand, institutions 18%, the public 13%, Standard Corporate and Merchant Bank 5% and Cape Town empowerment group Brimstone 9%. Shapiro is in no doubt that Afribrand will be a successful listing, will show good growth and trade at a high price-earnings ratio. He is right: there's already a bun-fight for shares outside the sweet shop.