Chance of a bumper har­vest within months

Financial Mail - Investors Monthly - - Analysis - Marc Hasenfuss

Div­i­dend pay­ments have never been a main at­trac­tion at agribusi­ness in­vestor Zeder, but the gen­er­ous 22% hike in the yearto-end-Fe­bru­ary dis­tri­bu­tion to share­hold­ers sug­gests di­rec­tors were in stri­dent mood.

This con­fi­dence may ap­pear cu­ri­ous con­sid­er­ing re­cent events that have ren­dered lo­cal eco­nomic prospects more brit­tle — par­tic­u­larly since the agri­cul­tural sec­tor has only now start­ing to re­cover from a pro­longed drought.

But there does seem to be a good chance of a bumper har­vest from the larger parts of Zeder’s port­fo­lio in the months ahead. The com­pany’s big­gest in­vest­ment — the more than R10bn stake in Pioneer Foods — may un­dergo a ma­jor trans­for­ma­tion. Pioneer is un­der cau­tion­ary, which has led to spec­u­la­tion that a size­able off­shore deal is in the off­ing.

The up­com­ing list­ing of 39.4%-owned farm­ers’ re­tailer Kaap Agri on the JSE should also be a ma­jor event. Kaap Agri has en­joyed strong profit growth on the back of a suc­cess­ful di­ver­si­fi­ca­tion into new re­tail for­mats. A move to the JSE should un­lock con­sid­er­able value, as the over-the-counter share price does not re­flect the earn­ings mul­ti­ples that are nor­mally as­so­ci­ated with prof­itable listed re­tail­ers.

There has also been en­cour­ag­ing progress in re-en­er­gis­ing the smaller parts of Zeder’s port­fo­lio. Seed spe­cial­ist Zaad recently made a bold off­shore foray into Turkey, while Zam­bian com­mer­cial farm­ing en­tity Agriv­i­sion turned its first (mean­ing­ful) profit. Fruit ex­port­ing and lo­gis­tics com­pany Capes­pan is mak­ing in­roads into China and bol­ster­ing its farm­ing ef­forts.

Though there ap­pears to be mo­men­tum through­out Zeder’s port­fo­lio, the ma­jor thrust stems from Pioneer’s dom­i­nance of the port­fo­lio.

Pioneer rep­re­sents a chunky 66% of Zeder’s R15.4bn sum-of-the-parts val­u­a­tion. In the past this has lead to Zeder be­ing per­ceived as a proxy for Pioneer, with the re­main­ing port­fo­lio largely ig­nored.

At the time of writ­ing Zeder’s shares were trad­ing at a fairly nar­row 14% dis­count to an 898c/share sum-of-thep­arts value. This sug­gests the mar­ket is no longer view­ing Zeder as merely a proxy for Pioneer. Of course, a more even port­fo­lio bal­ance would prob­a­bly be wel­comed — par­tic­u­larly since the smaller in­vest­ments ap­pear to have reached ex­cit­ing junc­tures in their de­vel­op­ment tra­jec­to­ries.

Zeder CEO Nor­man Cel­liers is at pains to stress that Zeder will not con­tem­plate un­bundling the Pioneer stake — pre­fer­ring rather to “bal­ance” the port­fo­lio by grow­ing the other in­vest­ments.

Capes­pan, which can make juicy prof­its un­der the right cir­cum­stances, and Kaap Agri, which has the po­ten­tial for strong or­ganic growth, are the likely “big grow­ers” in the Zeder port­fo­lio. Both are ca­pa­ble of mak­ing size­able ac­qui­si­tions.

The big ques­tion is whether Zeder in­tends con­cen­trat­ing on grow­ing its ex­ist­ing in­vest­ments, or whether ma­jor share­holder PSG will back the com­pany in mak­ing a large ac­qui­si­tion. If a large ac­qui­si­tion is be­ing con­tem­plated it is likely that Zeder will need to em­bark on a rights is­sue to raise fresh cap­i­tal.

PSG last year swapped a lu­cra­tive man­age­ment fee ar­range­ment for a big­ger hold­ing in Zeder. One sus­pects that PSG will prob­a­bly want Zeder’s ex­ec­u­tive team to do a bit more than just sweat the ex­ist­ing in­vest­ments.

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