With a market cap of a touch over R3bn, recently listed Rhodes Food will need to motor somewhat before it attracts the attention of the larger institutional investors. But that doesn’t mean the rest of us should ignore it. If the Pacmar acquisition is anything to go by, this is a business which may well have come to the JSE for all the right reasons. As you’ll conclude from my CNBC Africa interview with CEO Brice Henderson, the R165m acquisition is about as perfect a fit as you can find. Rhodes paid a rich price, though, so it’s no slam dunk. But definitely the kind of stock to keep an eye on with an intention of climbing in once it delivers on promises – or Mr Market temporarily loses interest. – AH
ALEC HOGG: Another story that is making headlines, by far the biggest story on SENS this morning, is that Rhodes Food Group, the recent listing is moving ahead. It is going to be buying 100 percent of a company called Pacmar. Joining us on the line is Bruce Henderson, the Chief Executive of Rhodes Food Group. Bruce, before we talk about this Pacmar deal, are you happy with the fact that you came to the market and the way the market has reacted?
BRUCE HENDERSON: Yes, good afternoon Alec. Yes, we are very happy and we had some very specific objectives when we decided to list and we’re happy with the way it’s gone and confident that we’re going to be able to meet those objectives, in the short term.
ALEC HOGG: Pacmar fits very nicely into what we know of your company. Have you been working on this transaction for a while?
BRUCE HENDERSON: We have had dealings with them over a number of years. They have been a customer of ours. We do sell them raw material, with our two fruit plants, one being in Swaziland, and one in the Western Cape. We produce quite a significant volume of fruit purées and juice concentrates, which we sell to the beverage industry around the world, and Pacmar has been a customer, so we’ve known them. It’s always been somewhere on our radar for us to add more value to those raw materials, so things have moved along with Pacmar, so we think this will be an exciting opportunity for us to go into a category that’s quite nicely allied to what we’re doing already. One in which we think our Rhodes brand could do well too and something that allows us to add more value to the products that we are already producing.
ALEC HOGG: It’s a right kind of acquisition, almost a ‘bolt-on’ if you like, but interesting to bring in Pieter Hanekom. You did mention in your SENS announcement today that he was the previous Head at Ceres Fruit Juices, so presumably he’s going to be involved in a big way in helping you with Pacmar, in the future. Did he bring the deal to you?
BRUCE HENDERSON: No, he didn’t bring the deal to us. Again, I’ve known Pieter for a number of years, just through the industry, and he’s a guy who fits in very well with Rhodes, in terms of the type of people we are and the way, we do business and he’s been doing his own thing for a year or so. Yes, I think that we’ve been having some discussions about him joining us and I think, certainly the Pacmar prospects was one that probably sealed the deal for us, in wanting to get Pieter on board.
ALEC HOGG: So everything fits together really nicely. The only question mark I’d have is the price. Here you’ve got a company that you’re buying a lot of goodwill, NAV of R39m. You’re paying R165m for it. EBITDA of only R22m on revenues at 368, so low margins or very small margins, and high multiple that you’ve been prepared to pay for it. Presumably, with Pieter on board and with the other benefits that you can get from the transaction, you can jack up those profits.
BRUCE HENDERSON: Yes, we’re very confident that we’ll be able to do that. It’s a business that’s situated very close to us. It’s in Wellington, which is 15 minutes from our head office, so there’s some tremendous synergy there. Certainly as a smaller business, stand-alone smaller business, it is very difficult to make real headway in a very competitive South African market. Then with the synergies through raw material and with the expertise that we have, and that Pieter brings to our business, we are comfortable that, certainly we’ll get the profitability margins to more in line with where the group runs right now. But then also bear in mind that we’ve disclosed figures that are as historic as July 2014, because that’s the last financial of Pacmar, so looking forward, it is a significantly different picture, yes.
