Sowing the Zaad of growth
Zeder was a good idea at the time. The time was 2006, and parent company PSG Group saw great opportunities in South Africa’s agricultural sector which had (then) undergone sweeping changes as the old farmers’ co-operatives transformed into public companies.
Initially a co-operative strove to deliver services and products at the lowest possible price to its farmer members. But the “corporatised” co-operatives now had an additional role providing returns to shareholders (the erstwhile farmer members).
This is where Zeder would step in. Zeder hoped shareholders in new agricultural entities would sell/swap their shares into Zeder, gaining a stake in a more diversified agricultural investment company that would bring the necessary corporate savvy to the table.
Zeder had some success effectively taking a kingmaker stake in Pioneer Foods (which was sold at a handsome profit to PepsiCo several years ago) and a commanding stake in JSE-listed agri-services giant KAL Group (subsequently unbundled). Less successful was the tilt at KWV, where plans to merge the brandy and wine business into Pioneer’s Ceres Beverages was stymied by resistant shareholders. Other tilts also fizzled out.
After the Pioneer/PepsiCo transaction, Zeder trading at a hefty discount to its sum-ofthe-parts (SOTP) value opted to unlock value for shareholders by disposing of the remaining investments.
Shareholders have been treated to a series of special dividends the latest being a 20c a share (roughly R308m) payment announced earlier in February.
But there is still a sizeable chunk of agri-assets left. Zeder’s remaining assets are its 97.2% stake in seed and agri-chemicals business Zaad as well as the old Capespan pome farming operations valued at R540m. The cash pile if we subtract the dividend due shortly is about R400m (though how much will be needed to fund the pome farming unit is not entirely clear).
At end-August 2023 the Zeder board, officially, remained “engaged with third parties on the remaining portfolio investments and continues to assess further wealth-maximising strategies in a responsible way”.
The group added that it would evaluate opportunities “as and when deemed appropriate in the interest of all stakeholders”.
Presuming the pome farming business can be disposed of in the next 18 months, IM regards Zeder as a straight proxy for Zaad. The Zaad stake is valued at more than R2.4bn accounting for almost 90% of Zeder’s market capitalisation.
It would be significant if Zeder opted to change its corporate identity to Zaad, but that might be jumping the farm gate too soon.
While Zaad which has a strong local presence as well as operations in selected offshore markets is an intriguing asset, Zeder provides only limited financial and operational information on the subsidiary.
The interim report stated that Zaad reported a decrease in recurring earnings to
R219m for its financial year ended June 30 2023 compared with R240m in the previous period.
Zeder listed promising performances from Agricol, Farm-Ag (agro-chemicals) and May Seed (Türkiye) as well as an improved performance from East African Seeds. The performance from the African operations and Bakker Brothers was less encouraging.
Zaad’s key Agricol operation enjoyed another good period with South African farmers benefiting from low international supply and sunflower seed shortages that were also supporting local canola and soybean oilseed crop prices.
What’s more, Zaad said there were indications that South Africa would have a dry El Niño weather cycle that could favour sunflower sales.
Chemicals business FarmAg achieved satisfactory results with supply from
China and India normalising and managed to increase its local footprint with new registrations.
Significantly, Zeder was happy to advance a bridge loan of R100m to Zaad to increase its stake in May Seed. This might not be the body language of a shareholder that is dead set on selling off Zaad.
In that regard, Zeder’s interim commentary reckoned the specialised agriinputs market especially the proprietary hybrid seed segment remained attractive.
While agribusinesses are subject to the vagaries of weather, wild swings in soft commodity prices and changing consumer demand patterns, Zaad looks an interesting longer-term prospect. Certainly, it would more than justify a standalone listing on the JSE and possibly warrant being floated onto a global bourse.
The R2.4bn question, however, is whether PSG the largest shareholder in Zeder would rather take Zaad/Zeder private.
IM would prefer Zeder to morph into Zaad, and grow out as a listed company on the JSE. PSG, on the other hand, may wish to close its drawnout agribusiness chapter at least to further public scrutiny.