Zeder cuts its special dividend

• Uncertainty about effect of the Covid-19 outbreak forces company’s hand

Uncertainty about the economic effect of the Covid-19 outbreak has prompted a lower-thanexpected special dividend payout proposal from PSG-controlled agribusiness investor Zeder. Zeder was the anchor shareholder in consumer brands company Pioneer Foods, which was recently sold to US beverages and snacks firm PepsiCo for $1.7bn (R26bn at the time).

Uncertainty about the economic effect of the Covid-19 outbreak has prompted a lower-thanexpected special dividend payout proposal from PSGcontrolled agribusiness investor Zeder.

Zeder was the anchor shareholder in consumer brands company Pioneer Foods, which was recently sold to US beverages and snacks firm PepsiCo for $1.7bn (R26bn at the time).

Last week Zeder confirmed the terms of the special dividend — proposing a payout of 230c a share, which is outside the lower end of the distribution range mooted by Zeder late in 2019.

Zeder received R6.4bn for its 27% stake in Pioneer, and promised to pay most of these proceeds to shareholders through a special dividend.

At the release late in 2019 of its interim results to end-August CEO Norman Celliers indicated that a special payout of R4.24bnR4.75bn was being contemplated. After settling Zeder’s existing debt of about R1.6bn, this would leave R50m-R500m to invest in Zeder’s remaining portfolio of assets — which include controlling stakes in unlisted agribusinesses such as Zaad, Capespan and The Logistics Group as well as listed counters such as Kaap Agri and Quantum Foods.

The envisaged payout range would translate into a special dividend of 249c-278c a share.

Zeder conceded the amount was slightly below the indicative intended range, but said that the board had decided it would be prudent to retain additional cash reserves for the time being “given the material change in market conditions and circumstances due to Covid-19”.

Zeder said this would be reviewed on an “ongoing basis” to see whether a further amount could be distributed to shareholders later.

The lower payout would mean that Zeder retains about R800m in cash on its ungeared balance sheet.

Zeder had indicated it would invest the remaining cash pile in its existing portfolio and look for new agribusiness opportunities.

Most market watchers have tagged 95%-owned seed business Zaad, which Zeder values at more than R2bn, as the investment with the biggest growth potential.

In the half year to end-July 2019, Zaad generated revenue of R570m and earnings before interest, tax and amortisation of R20m — but there was a R8.7m loss in the bottom line.

Market enthusiasm for the new-look Zeder seems muted with the share price offering a more than 30% discount on the sum-of-the-parts (SOTP) valuation of 628c a share as last stated at end-September 2019.

SmallTalkDaily analyst Anthony Clark estimated “a quick back-of-the-matchbox valuation” of 605c a share for an updated SOTP for Zeder.

“If you value the ‘rump’ [of the portfolio] debt free, then Zeder is currently offering a discount of 42.7% on a theoretical share price of 215c.” Clark said there was little to get excited about inside Zeder — unless Zaad was listed or an asset was sold.

ADDITIONAL CASH RESERVES TO BE RETAINED DUE TO CHANGE IN MARKET CONDITIONS CAUSED BY COVID-19