All eyes on Zeder after Pioneer Foods payout

The market’s value binoculars will be firmly focused on agribusiness investor Zeder after it pays out the bulk of its cash pile earned from the recent sale of its major shareholding in Pioneer Foods.

On Thursday Zeder gave the market some inkling of an updated valuation when it issued a trading statement.

Previously PSG-controlled Zeder had conveniently posted a daily update of its estimated sum-of-the-parts (SOTP) valuation on its website.

This was suspended while the Pioneer transaction was finalised, with the company indicating the online update will be activated only on April 15 when the final year-end results are published.

Zeder’s latest trading update pencilled in an SOTP of 597c a share as at end-February.

The trading update did not offer a breakdown of the constituents of that valuation number, but investors will probably do their own number crunching. Subsequent to year-end, Zeder announced that 230c a share will be paid out as a special dividend. Technically speaking, that would infer a postdividend share price of 208c based on Thursday’s close price of 438c.

With Zeder — now ungeared and holding a larger-thanexpected cash pile of about R750m — it will be interesting to see the updated valuations placed on its larger unlisted investments in the financial report on April 15.

Certainly the market is not nearly valuing investments such as seed business Zaad (valued at about R2.2bn) and Capespan (more than R1bn) at anything near what Zeder did in its previous valuations.

Much in the world has changed, and it will be fascinating to see if anything has altered in the weeks since the updated SOTP gauge was suspended.

ROUGH RIDE FOR REITS

Eventually momentum will return to SA’s corporate world and companies will begin to list on the JSE again. It is unlikely that many real estate investment trusts (Reits) will come to market because the popular capital structure for property companies has been shown to be fallible in economic downturns.

The Reit dispensation was adopted in SA from late 2013. By definition, Reits must pay a minimum of 75% of their distributable income as dividends to shareholders.

This gives a Reit a huge tax saving as the income is taxed at a shareholder level and not at a company level.

At least 75% of income earned by a Reit needs to come from rent.

It became typical for SA Reits to pay 100% of their distributable income as dividends. This worked well in the good times and Reits flooded the JSE.

Raising capital seemed easy for Reits of all sizes.

But now we are in a bear market with a weak economy that is barely growing and tenants who are battling to meet rental payments.

Covid-19 has made it very difficult to forecast dividends.

To keep their Reit status, these companies have to pay dividends. They are now talking to the JSE about Reit rules being suspended for at least a year.

Given all of this pressure faced by the property industry, expect to see developers and other property companies, which focus on capital growth, listing on the JSE and other bourses in future as opposed to income-focused Reits.