Caxton Now Focuses on Newspapers, Packaging and Mpact

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SIMON BROWN: I am now chatting with Tim Holden, MD of Caxton. [Annual] the results came out when I was at the beach. Overall earnings per share tripled to around 75 cents, with a dividend of 50 cents [was] declared at the same time. This is a stock that is trading at around R8.

Tim, I enjoy the time, especially in the studio. A really solid set of results. If we go back to the comparison against 2019 – because of course last year was a year we all expect to forget – how is the company doing compared to the 2019 numbers?

TIM OUTFIT: Hello Simon, and hello to your listeners. Thank you for this opportunity. Yes, if you look at our operating profit versus 2019, before the pandemic, we’re actually starting to get closer to those levels very nicely. We are not far from these levels. Looking at where this is coming from in our group, we have effectively exceeded pre-pandemic operating profits in our commercial printing and packaging, which returned very strongly in the second half of our fiscal year.

The other sector that is lagging a little behind is newspaper publishing, where advertisers need a little time to return to the same levels as in 2019.

That said, heading into the new fiscal year, in the first quarter, we certainly saw some positive trends in this regard, and it should be soon before we return to those pre-pandemic advertising levels.

SIMON BROWN: I was at KZN and picked up one of your community newspapers. It wasn’t as thick as it sometimes is, but it was definitely thicker than it was. This is the key; you post. People will say print is dead except you publish – how many community newspapers are there?

TIM OUTFIT: It is about 110 newspapers. These are weekly newspapers. And we probably deliver between three and three and a half million newspapers a week, 52 weeks a year. So if you understand these stats, you will see that this is an important distribution channel for large format product and price advertising.

SIMON BROWN: Yes. So if I’m a Shoprite and want to reach a large audience, I can go to SABC, The Sunday Times; I can also come to you.

TIM OUTFIT: Absoutely. We have a footprint of 3.5 million homes. And with that, we get the community news that lends itself to household members reading the ad more.

SIMON BROWN: You quit the magazines. This is the only area you are outside of; the printing of the magazines is now complete. You are moving a lot towards packaging as some kind of new focus, or a new area. What types of markets do you operate in in the field of packaging?

TIM OUTFIT: If you look at our packaging business, we’ve really grown it over the past seven years. It used to be about 20% of our operating profit and is now close to 50% – and we’ve done that through acquisitions. One of the main ones is that we bought part of Nampak about seven years ago.

And the markets we operate in – we’re either number one or number two in those markets. We’re very big in the label market – everything to do with wine, beer, spirits, canned labels. And we are the leading supplier of paper beer labels in the country.

And then we are also very big in the folding carton, anything in a box. But I think significantly, when we speak [about] our folding box business, we are very strong in the fast food category.

So we’re a 100% McDonald’s supplier, we’re a 95% KFC supplier, 100% Chicken Licken, and probably a 50% Nando’s supplier. These markets are developing.

It is a growing market. They are always opening up more outlets and innovating in terms of products.

The other area in which we are very strong on the folding box side is in cigarette packaging.

We are a 100% British American Tobacco supplier. Obviously they have been affected by the illicit trade and we have felt it, but we are seeing other opportunities in Africa for cigarette packaging.

These are therefore the main markets in which we operate at the moment.

SIMON BROWN: When you say packaging, our heads are always on e-commerce – all those Takealot boxes that we get – but in fact [there are those] The QSRs, those quick-service restaurants. During the pandemic, we are eating more take out food than ever before.

You also have a 31% stake in Mpact, which is of course packaging. Is 31% where you leave it? Are you looking to push it? Was it opportunistic, and at some point you’ll take the money and run away?

TIM OUTFIT: No, we have been watching Mpact for quite some time and we saw the opportunity in December of last year and we bought it at a very, very good price. Its value more than doubled thereafter. It really is a big company, we think, with big assets and good management, and our intention is to want to take control.

We want to grow in the packaging market and we see this as a very good asset that we would like to take control of.

But, as usual, we are also looking for the right way to do it, not necessarily to overpay.

SIMON BROWN: This is a key point. That brings me to the balance sheet, which is described as strong or lazy – depending on which angle we take. I think during a pandemic we may be going with the strong side, almost 2 billion rand in cash. This is an important measure because your market cap is only around 3 billion rand. I say “only” – but still.

You have certainly made the allocation of capital over the years. You mentioned Mpact, you mentioned the Nampak accord, which I had forgotten, from around 2014 or before. You return part of it to shareholders in the form of dividends, but obviously keeping it for opportunities.

TIM OUTFIT: Yes. Cash has always been very strategic for Caxton. We use it to increase shareholder value by seeking good acquisitions. I think in the results we have provided here there is an example of this, where we took a small stake in a fiber-to-the-home business, on which we made a profit of 400 million Rand . We are therefore used to distributing capital well. We are not going to buy everything that comes across our heads. We are going to do what we think fits perfectly with our business and Mpact is one of them. We would like to conserve our cash to consider increasing our stake in Mpact and improving our earnings.

SIMON BROWN: Last question, which is the cost of raw material inputs, supply chains. I imagine for most of the CEOs I chat with, this has been one of their biggest challenges over the past year, aside from the practicality of Covid.

TIM OUTFIT: Yes. We import a lot of our raw materials, and in December of last year we saw the global supply chain tighten and we made the decision to really build up our inventory. It was a fantastic move because we have been successful in gaining market share in some of our markets where our competition has actually been way too tight on inventory. We will continue to do so. We do not see it diminishing.

The other ripple effect is rising prices, and our focus this year is really how we do that.

SIMON BROWN: That was going to be my question. Are you able to pass it on?

TIM OUTFIT: We must. The price increases are too large to be absorbed, so they must be passed on.

SIMON BROWN: We’re going to leave it there. Tim Holden, Managing Director of Caxton, I appreciate your time in the studio this morning.


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