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