Zeder’s moment, at last?
PSg-aligned agribusiness Zeder Investments — now shot of Pioneer Foods and Quantum Foods — had some encouraging crimping of the discount the share price offers on the SOTP (sum-of-the-parts) valuation last week. The share price spark followed the resignation of long-serving CEO Norman Celliers, who headed the business for eight rather difficult years in the local agricultural sector.
While much might be made of Celliers’ turgid tenure at Zeder, I suspect the share price shift up was more informed by the board decision “to reconsider the strategy going forward”. A change of strategic tack at Zeder could encompass the glaringly obvious option of “value-unlocking in a responsible way”. Presumably a value unlock could also entail PSG, the controlling and cash-flush shareholder, pitching an offer to minority shareholders — perhaps at a decent premium to the share price but undercutting the SOTP.
Zeder shareholders, however, might prefer to see a cashing out of at least some of the portfolio, even if it’s a gradual process. My gut feel is that PSG might want to cling onto seed business Zaad, which is yet to produce profits commensurate with its valuation.
Zaad is Zeder’s biggest investment with an estimated value of more than R2bn, and would be a significant strategic investment in PSG’S new-look portfolio (now that most of the stake in Capitec Bank has been unbundled).
Just this week, Zaad established a corn seed joint venture with Vilmorin & Cie (the holding for Limagrain Europe) and Seed Co SA (controlled by Vilmorin). The same might apply to Kaap Agri, the listed agriservices business that still has the potential for bulking up (especially its retail channels). There may be less enthusiasm for fruit marketing giant Capespan, which is still subject to the vagaries of fickle global fruit markets. Finding a buyer for Capespan at the R1bn valuation set by Zeder might be challenging — though it should be remembered that listed UK fruit and vegetable marketing group Total Produce had previously snaffled a strategic minority stake in the business. Total Produce’s stake was sold back in 2013, when it was apparent that Psg/zeder had gained outright control of the group.
With interim revenues of more than €3bn, Total Produce still seems well capable of digesting Capespan. Whether there is an appetite to acquire it is another story entirely. Perhaps a more intriguing Zeder sale might be the controlling stake in The Logistics Group (TLG) — a Capespan offshoot that has successfully broadened its traditional fresh and frozen produce logistics into more general cargo loads. TLG has strategic port and warehousing facilities in Cape Town, Maputo, Port Elizabeth and Durban. I wonder whether this business would not appeal to Grindrod (see Money & Investing section), once it has cashed out its noncore operations for a sharper operational focus on ports, terminals and logistics.
Small-cap stalwart
For a company that had the rug pulled out from under it, technology security group ISA has not fared as badly as might have been expected.
A recent trading update pencilled in headline earnings of between 4.12c and 5.88c a share. This after ISA in November last year advised that its preferred vendor status for Check Point Software Technologies had been devastatingly downgraded.
Before the vendor status debacle,
ISA was one of the best regarded small caps on the JSE — highly efficient with compelling cash flows. I sincerely hope ISA is finding traction with other international security software providers. It would be a shame to see this business model broken by an unfortunate tinkering of a vendor agreement. ISA’S share price – up over 30% in the past six months – reflects some optimism that cash flows can be slowly rebuilt on a renewed and more diversified software offering.
Zeder shareholders might prefer to see a cashing out of at least some of the portfolio