Zeder’s ‘sum of the parts’ add up very well for in­vestors

The Star Early Edition - - OPINION & ANALYSIS - Amelia Mor­gen­rood

ZEDER is an in­vest­ment trust spe­cial­is­ing in in­vest­ments in the agribusi­ness in­dus­try. Agribusi­ness is a broad de­scrip­tive term re­fer­ring to a range of ac­tiv­i­ties and pro­cesses in­volved in mod­ern food and raw ma­te­rial pro­duc­tion.

It en­com­passes all the pro­ce­dural and prac­ti­cal ser­vices and prod­ucts associated with the word agri­cul­ture: the farm­ing of ev­ery sort, ma­chin­ery, dis­tri­bu­tion, pro­cess­ing, mar­ket­ing, fi­nanc­ing and so on.

The suc­cess of this in­dus­try is key to the fu­ture of the global pop­u­la­tion, which con­tin­ues to grow and ur­banise. The words “food se­cu­rity” are of­ten associated with the in­vest­ments of Zeder.

The way to value Zeder is to cal­cu­late the value of each of the com­pa­nies Zeder owns, known as the sum of the parts (SOTP), and then di­vide it by the num­ber of is­sued Zeder shares.

Some of the com­pa­nies are listed and oth­ers are pri­vately traded shares. You don’t even have to up­date your own spread­sheet, on the Zeder web­site you can get this in­for­ma­tion on a daily ba­sis.

Zeder’s big­gest in­vest­ment is a stake in Pi­o­neer Food Group, rep­re­sent­ing 56 per­cent of Zeder. Three more in­vest­ments, namely Capes­pan, Zaad and Kaap Agri take the value to 95 per­cent of the SOTP.

The bal­ance is made up by Agriv­i­sion Africa and Quan­tum Foods. Ac­cord­ing to the Zeder web­site, the SOTP is R7.88, which means that Zeder is cur­rently trad­ing at a dis­count to the SOTP of ±15 per­cent.

You can ar­gue that you can go and buy the un­der­ly­ing com­pa­nies di­rectly, as most of them are listed, or pri­vately traded. It is a good ar­gu­ment, be­cause then you don’t have to pay Zeder a man­age­ment fee.

Up to 2016, Zeder was crit­i­cised for the hefty 1.5 per­cent plus per­for­mance man­age­ment fee they charged, now changed. On­go­ing costs will be in the an­nual re­gion of R20 mil­lion-R25m with PSG charg­ing R5m for its di­rec­tors’ time and ser­vices. This is a sav­ing of up to R300m-R400m per year which can now be used to in­vest in more busi­nesses or pay big­ger div­i­dends.

Pi­o­neer Food Group

The share price has been in a down­trend since May when a pos­si­ble trans­ac­tion was called off due to the sov­er­eign debt rat­ing down­grades in SA and the po­ten­tial for ad­di­tional down­grades. Ever since the share price dropped 26 per­cent to R138.

The com­pany is in­volved in the man­u­fac­tur­ing of food, bev­er­ages and re­lated prod­ucts.

Pi­o­neer has a long list of very strong brand names, like Bovril, Maizena, Moir’s, Spekko, White Star Maize Meal, Bokomo, Ceres, Fruitree, ProNutro, Re­dro, Sasko and Weet-Bix.

Capes­pan & Zaad

Both un­listed and rep­re­sent­ing 25 per­cent of the Zeder port­fo­lio. Capes­pan, the fruit, farm­ing and lo­gis­tics busi­ness has gone through re­struc­tur­ing and may be turn­ing the cor­ner soon.

There are sig­nif­i­cant plans un­der way to in­crease owned-fruit farm­ing op­er­a­tions and Zeder has set a tar­get of R500m in group profit. In May Zaad ac­quired a 35 per­cent share in Turk­ish com­pany May-Agro To­hum­cu­luk Sanayi ve Ti­caret Anonim (May Seed), Tur­key’s largest pri­vate-sec­tor agri­cul­tural seed pro­ducer. Zeder chief ex­ec­u­tive Nor­man Cel­liers said the two com­pa­nies could max­imise their south­ern and north­ern hemi­sphere re­search and devel­op­ment ca­pa­bil­i­ties by re­duc­ing the devel­op­ment time of new seed va­ri­eties.

Kaap Agri

Listed on June 26, 2017, it traded as high as R64. There was con­sid­er­able in­ter­est in the share, which had pre­vi­ously traded on an over-the-counter (OTC) mar­ket.

When trad­ing was sus­pended on the OTC mar­ket in May, Kaap Agri’s shares were quoted at R55. Since list­ing the price has been tick­ing down slowly to a level of R58. The core of the busi­ness is re­tail, but they also of­fer fi­nan­cial, grain han­dling and agency ser­vices.

Kaap Agri has more than 200 op­er­at­ing points that stretch over 95 cities, towns and places. Kaap Agri has en­joyed strong profit and div­i­dend growth over the past decade as the com­pany suc­cess­fully di­ver­si­fied its re­tail op­er­a­tions.

Com­ing back to the ar­gu­ment of buy­ing Zeder, or the un­der­ly­ing di­rectly; my ar­gu­ment is that it makes sense to have only one counter in this sec­tor in your port­fo­lio, and leav­ing in­vest­ment de­ci­sions in the very ca­pa­ble hands of the man­age­ment team of Zeder. PSG holds a stake of 34.6 per­cent in Zeder, and I rest as­sured that they will keep an eye on their in­ter­est, to­gether with mine. Buy­ing Zeder at a dis­count of 15 per­cent of the SOTP is at­trac­tive.

It makes sense to have only one counter in this sec­tor in your port­fo­lio, leav­ing in­vest­ment de­ci­sions in the very ca­pa­ble hands of Zeder’s man­age­ment team.

Amelia Mor­gen­rood is PSG Wealth re­gional di­rec­tor.

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