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COMPANY COMMENT: Is it meat or is it poison?


COMPANY COMMENT: Is it meat or is it poison?

Net1 and Bowcalf under the microscope


It looks like a case of “one man’s meat is another man’s poison”.
Last week Net1 executives told analysts listening in to a teleconference the 7% hike in revenue from its South African operations during the three months to the end of December was underpinned by increased EasyPay Everywhere (EPE) transaction revenue.
CEO Herman Kotzé  talked about how the roll out of 500 additional portable enrolment workstations along with a “roving sales force” helped to lift EPE account numbers.
Additional good news, for Net1 shareholders, is that not only has demand for the low cost EPE bank accounts increased there has also been a “meaningful increase” in the company’s loan book.
While this might have been meaty stuff for Net1 shareholders the expert panel appointed by the Constitutional Court seemed to regard it as particularly poisonous. In its latest report, released a week or so before the Net1 results, the panel referred to the number of social grant beneficiaries with EPE accounts passing the two million mark in December. It also noted the South African Social Security Agency (Sassa) had raised concerns about the aggressive rollout of EPE accounts by Net1 subsidiary Cash Paymaster Services (CPS) and Grindrod.
While the panel noted that Sassa was taking steps to tackle the aggressive EPE sales push it remains “concerned about Sassa’s seeming inability to stem the misinformation about the EPE card as the “new” Sassa card, and to investigate and take action where Sassa and CPS staff are alleged to have marketed the EPE accounts on Sassa premises and at cash pay points”.
The EPE accounts are a major source of complaints about illegal deductions and financial products that beneficiaries claim they did not purchase and closing an EPE account is “arduous”, says the panel. Which is maybe why Net1 shareholders like them.Bowcalf
According to a cautionary announcement last week Bowcalf has accepted an expression of interest to acquire its large stake in SoftBev.
Bowcalf initially had a few options with SoftBev. But these were diminished when the business, which bottles Jive, Reboost and Pepsi, did not perform to expectations since its formation (from a merger between Quality Beverages and Shoreline) a few years ago.
Originally there were plans to unbundle the stake in SoftBev to shareholders and then list it on the JSE. Obviously the disappointing profit performances put that option squarely on the backburner. Perhaps it is then better for Bowcalf to let go of the SoftBev stake, allowing management to focus on its core packaging business.
What will be interesting is how much Bowcalf can get for its stake in SoftBev.
Brian Joffe’s Long4Life recently bought two beverage companies and these deals will provide some basis for comparison. Equally intriguing is the identity of the buyer of Bowcalf’s stake. Long4Life probably has enough exposure to the niche beverages sector to be regarded as a contender.
KWV has in the past also been cited as a suitor for SoftBev. Gut feeling, though, is that KWV probably has enough on its hands in the wine and brandy segment to dilute management’s focus with soft drinks.

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