Diamonds & Dogs: Of pork skins with Mukuyu Wines

Diamond: Delta Beverages

Delta Beverages numbers now come to the market after parent company SABMiller would already have provided some insight into the volume numbers.

An analyst’s job would be simply to do the backward number crunching. That volumes rose a muted 9% y-o-y was not a surprise even though the stunted growth was due to an 8% fall in “masese” following an upward review in prices.

Delta became the first billion dollar market cap company on the ZSE even though the original trades taking it into the 10 digit zone were for posterity.

Now post financials release it seems to have established a support level probably around 95c though Diamonds & Dogs is sure that the range for support could pull back to 90c.

Whilst the share price has not moved phenomenally upwards the past week to warrant a diamond spot on basis of %ages, it’s the result of significant capex into modern technology that Diamonds & Dogs wishes to highlight.

There are many other companies that form great turnaround stories if only they can invest in new PPE. The figure 42,000 beer pints per hour was unbelievable when Delta commissioned the first installment of its bottling lines months back.

It went on to add more lines on both sparkling beverages, beer and even had the luxury of premium priced products.

The efficiencies from new lines are compensating for would be additional costs in switching to “dumpies” or disposable bottles and all.

The margins are also improving even though they are about to hit the short term optimal levels.

The cash is flowing with a 33% dividend payout though shareholders will definitely prefer a payout in excess of 50%.

After all, most of the capex is done and after FY2013, all the money just has to go back to shareholders.

Plus…there will be more drinking during election time!!!

Dog: Cairns Foods

Diamonds & Dogs feels for Cairns management and its entire workforce. Just what exactly is it that they wake and go to work to do?

The product line from Cairns has literally disappeared from the shelves in supermarkets and the space is full of imports and repackaged products.

No Willard Corn Flakes, no Willards Bran Flakes, no Willard Peanut Butter, no Sun Jam, no Mukuyu Wines, No Cashel Valley beans, no Brono Gravy, no Tomango!!

Unless the RBZ finds a taker soon, the company is just likely to fold under the burden of debt and it doesn’t have the financial position to refinance the same debt cheaper.

Diamonds & Dogs hopes, there will be no creditor intend of attaching the company’s assets.

Juxtapose Cairns Foods’ performance to reduction in capacity utilization in the manufacturing sector and you really get the picture.

The cost of production in Zimbabwe is so high that it just makes less economic sense to dump higher priced local products on the market.

Diamonds & Dogs made his decision long back when Cashel Valley was still in the shops at $1.12 against Tiger Brands’ Koos beans at $0.85.  The premium pricing could not prevail in Zimbabwe given the disposable income levels and moreso being above that of a relatively fair quality product.

The same goes for Chompkins “Chips”. Diamonds & Dogs did see some packets squashed in a corner at OK Zim Greencroft and priced at $2.00 for the big packet and again more expensive than Lays and Simba chips which are of great quality anyway.

What is the management strategy? Recover the punitively high costs through higher prices which materially reduce stock turnover ratio and worsen the cash position for the company.

Cairns Foods is in need of plant overhaul to introduce efficiencies, better throughput and ching ching to shareholders.

Unfortunately, unless a deep pocketed investor bails the company out soon, Cairns Foods might just be destined for the history books. The Zimbabwean consumer is not too picky on quality otherwise pork skins would not be flying off the shelves right now!

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