It’s more than fruit

Lo­gis­tics build­ing a head of steam

Finweek English Edition - - COMPANIES & MARKETS - MARC HASENFUSS marc.hasenfuss@finweek.co.za

THE SUD­DEN BID­DING WAR for fruit ex­porter Capes­pan has got in­vestors’ tongues wag­ging about what value or po­ten­tial could be hid­den in the for­mer Bel­lville-based co-op­er­a­tive. Over pre­ced­ing weeks Finweek has out­lined a for­mal bid of 225c/share for Capes­pan from listed agribusi­ness in­vestor Zeder In­vest­ments – which was promptly fol­lowed by a mys­tery bid (pos­si­bly ma­jor share­holder To­tal Pro­duce plc) for 50m shares at 240c and other smaller bids at higher prices.

Capes­pan – un­like other more buxom agribusi­nesses in the form of Clover or KWV – has been a bit of a wallflower.

The emer­gence of de­ter­mined suit­ors over the past few weeks should raise a few eye­brows and per­haps prompt ques­tions as to whether Capes­pan (like KWV) may hold a trea­sure trove of un­der­val­ued as­sets. Af­ter all, “un­der­val­ued as­sets” (re­mem­ber­ing KWV’s mod­est ac­count­ing value of its prop­er­ties and art col­lec­tion) is a term largely ap­pli­ca­ble to agribusi­nesses.

Zeder al­ready has one hand on the prize, hav­ing ac­cu­mu­lated al­most 35% of Capes­pan. The bulk of Zeder’s stake was built up at prices closer to the 120c/share mark, al­though a chunk of shares has been col­lected fol­low­ing the buy­ing in the over­the-counter mar­ket at 225c.

Be­fore Zeder’s for­mal of­fer those in­vestors delv­ing into Capes­pan were re­ally buy­ing scrip on the ba­sis that at lev­els be­tween 110c and 150c there was an enor­mous dis­count on Capes­pan’s net as­set value of al­most 280c/share. Cer­tainly, Capes­pan’s in­dif­fer­ent op­er­a­tional per­for­mances over re­cent years (not­with­stand­ing some at­trac­tive div­i­dend dec­la­ra­tions) wouldn’t jus­tify too much ex­cite­ment about op­er­a­tional prospects.

Yet there are bid­ders pre­pared to pitch of­fers at prices fairly close to Capes­pan’s in­trin­sic NAV. Surely the ag­gres­sive bid­ding isn’t premised on as­set val­ues but rather Capes­pan’s op­er­a­tional po­ten­tial? As we’ve pointed out be­fore, new CEO Jo­han Dique (ex Sen­wes) comes with a for­mi­da­ble rep­u­ta­tion.

Finweek be­lieves “po­ten­tial” lies out­side the core com­pe­tency of fruit (al­though a weaker rand would help no end) and can rather be found in Capes­pan’s Lo­gis­ti­cal Divi­sion. Capes­pan’s an­nual re­port to end-De­cem­ber 2010 noted the Lo­gis­ti­cal Divi­sion made “ex­cel­lent” progress in di­ver­si­fy­ing types of cargo and grow­ing its third-party fruit busi­ness.

In its last fi­nan­cial year the Lo­gis­ti­cal Divi­sion – which com­prises port ter­mi­nal op­er­a­tions, ship­ping and cold stor­age – only gen­er­ated R590m, against the R2,2bn from Capes­pan’s core fruit op­er­a­tions. Though the divi­sion’s top line was se­ri­ously cur­tailed when its ship­ping arm – Uni­ver­sal Reefers – was with­drawn from open mar­ket trad­ing of con­ven­tional re­frig­er­a­tion ves­sels, lo­gis­tics still man­aged to chip in R70m to af­ter-tax prof­its against the R21m from the fruit divi­sion.

Port ter­mi­nal busi­ness FPT was the star per­former, with the num­ber of fruit pal­lets han­dled in­creas­ing by 12% to 741 000.

More im­por­tantly, in terms of se­cur­ing third-party busi­ness FPT’s “out­side” vol­umes grew to around 84% of to­tal fruit vol­umes. The vol­umes of gen­eral cargo also showed en­cour­ag­ing growth of more than 50% to 712 000t, while con­tainer­ised vol­umes grew 28%.

Things look a lit­tle dis­mal at Uni­ver­sal Reefers – es­pe­cially since it was an­nounced

that the ten­der for the United States cit­rus pro­gramme was un­suc­cess­ful. The swing to trans­port­ing fruit in re­frig­er­ated con­tain­ers has seem­ingly al­tered prospects for this busi­ness rather dras­ti­cally. How­ever, the an­nual re­port does state Capes­pan is “in­ves­ti­gat­ing var­i­ous ac­qui­si­tions in the Lo­gis­ti­cal Divi­sion for fur­ther diver­si­fi­ca­tion”.

In­vestors will no doubt be keenly an­tic­i­pat­ing Capes­pan’s in­terim re­sults to endJune to gauge the progress of its Lo­gis­ti­cal Divi­sion. In­vestors may well have no­ticed the divi­sion was grind­ing along turgidly in the first half of the year to year-end De­cem­ber be­fore pulling off an amaz­ing come­back over the sec­ond half. If the mo­men­tum from its sec­ond half come­back is still there then the in­terim per­for­mance from the Lo­gis­ti­cal Divi­sion to end-June this year should look fairly steamy. In­vestors may want to check out the in­terim per­for­mance of the six months to end-June 2009 (when earn­ings came in at around 17c/share) when mulling pos­si­ble “nor­malised” bot­tom line fig­ures. And there have also been some cost-cut­ting ini­tia­tives that could re­in­force net mar­gins, which should partly off­set the rand’s dal­liance at stronger lev­els.

In­deed, a pow­er­ful per­for­mance from the Lo­gis­ti­cal Divi­sion – and let’s also not write off the chance of in­spired ac­qui­si­tions – might well ex­plain the cur­rent will­ing­ness by (what ap­pears to be) var­i­ous par­ties in bid­ding up Capes­pan with such vigour.

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