Some business models were made to last. They were not blunder. They were carefully thought out and planned. Today a number of companies stand out not because they are doing anything fancy but they are simply tweaking and in some cases reshaping a business model established years ago, adjusting it to changing tastes and times. You and I seek to profit from some of these models that were set up decades or even centuries ago. This is the reason we wake up everyday and look forward to identifying the right investments and assessing them in order to profit from their activities.
The last time I wrote I spoke of Dairibord as a company that I said was well managed and recommended it as a BUY. It was 12 cents then. Today Dairibord is sitting at 17.1cents, a gain of over 42.5% in 45 days. Dairibord’s business model was well thought and made to last. I am not taking anything from management here. Keeping it together is not something you just pick up along the way. It takes great effort and planning to keep a company with a good business model on track.
Delta’s latest financial results also speak volumes about the importance of having a management that is in touch with reality. Delta posted an after tax profit of $20million for the six months to September 2010. The second half from October to March 2011 is what we will focus on here. Historical numbers are a good reminder that the ship is still on course. The company saw an increase in volumes across all its lines except sorghum based beer which was down 4%. This excites me. The company anticipated the demand for its products and is geared to meet it. That means more revenue is expected and with that better profits. The profits are not as a result of price increases there were none during the just ended period.
It is nice to see some companies taking advantage of the current environment. Listening to Joe and his team speaking about what they are doing, you can see where they are going. Sadly the same cannot be said of a number of companies that are operating in our promising economy. Having a profitable business model and making it profitable are two different things. Delta, Dairibord and Econet have all identified their space in Zimbabwe and are doing everything to defend that position. Who benefits in the end? It is the investor who has patiently waited because they know they have invested in the right company.
I had a chance to listen to Strive (Econet) speak about the telecommunications industry in Africa and saw how simple his idea was. http://www.youtube.com/watch?v=ECOKKj-TkV4. It may not be easy to build a telecommunication networks but who can argue with the fact that the tools of communication that we use in our everyday lives will be with us forever. They will evolve over time but the truth is that in the same way we need water we need to communicate. To me it is an important part of life. Without it something is missing. Am I going to stop buying airtime for me to communicate, its unthinkable! It is fast becoming a right, like the right to food and shelter! Strive probably never thought about this as he was setting up Econet, but today he has build a company that has an everlasting business model.
The challenge in many companies is not that they don’t have the right business model, it is their failure to take full advantage of their situation by anticipating what the market needs and attending to them. In Delta’s case the investment of over $70 million was meant to address the supply bottlenecks and the brand concerns that had seen the economy flooded by imported beverages. Today Delta’s brands trade side by side and are preferred by consumers. This is because Delta had the right products in the first place. Today Delta’s management is matching blow for blow its competition’s strategies and guess who is winning, the investor!
I know I now sound like a friend of mine who is in the marketing business pitching for brand management account. It is interesting though isn’t it that the thing most company executives ignore as marketing stuff ends up affecting profits and ultimately shareholder value. One might ask what Delta’s reengineering of its brands or Dairibord’s repackaging of its brands has anything to do with investments or profits. Now you know.
Sitting shareholders often wonder why the share prices of the companies they are invested in never do well, when the companies themselves are profitable. Sometimes investors see a good business model, they see the future and when that future is spoiled constantly by failures to take full advantage of good fortunes companies are facing they resign in protest and move on to companies that are doing so. Investors want management who don’t leave a cent on the table. They want management that takes full advantage of good times. Remember good times don’t last for ever.
In my parting shot, I leave you to think about some companies that have been long forgotten on the ZSE. Perception is hurting some of them but they are in the right areas. They may also be need of some reengineering and capital: Turnall, African Sun, Pelhams, Afdis, Caps, Cairns, TPH, Hunyani to mention but a few. I am not saying that these companies are profitable or will be in the short term. With the right amount of work, the business models that these companies have can turn them into giants.
