Chance of a bumper harvest within months

Dividend payments have never been a main attraction at agribusiness investor Zeder, but the generous 22% hike in the yearto-end-February distribution to shareholders suggests directors were in strident mood.

This confidence may appear curious considering recent events that have rendered local economic prospects more brittle — particularly since the agricultural sector has only now starting to recover from a prolonged drought.

But there does seem to be a good chance of a bumper harvest from the larger parts of Zeder’s portfolio in the months ahead. The company’s biggest investment — the more than R10bn stake in Pioneer Foods — may undergo a major transformation. Pioneer is under cautionary, which has led to speculation that a sizeable offshore deal is in the offing.

The upcoming listing of 39.4%-owned farmers’ retailer Kaap Agri on the JSE should also be a major event. Kaap Agri has enjoyed strong profit growth on the back of a successful diversification into new retail formats. A move to the JSE should unlock considerable value, as the over-the-counter share price does not reflect the earnings multiples that are normally associated with profitable listed retailers.

There has also been encouraging progress in re-energising the smaller parts of Zeder’s portfolio. Seed specialist Zaad recently made a bold offshore foray into Turkey, while Zambian commercial farming entity Agrivision turned its first (meaningful) profit. Fruit exporting and logistics company Capespan is making inroads into China and bolstering its farming efforts.

Though there appears to be momentum throughout Zeder’s portfolio, the major thrust stems from Pioneer’s dominance of the portfolio.

Pioneer represents a chunky 66% of Zeder’s R15.4bn sum-of-the-parts valuation. In the past this has lead to Zeder being perceived as a proxy for Pioneer, with the remaining portfolio largely ignored.

At the time of writing Zeder’s shares were trading at a fairly narrow 14% discount to an 898c/share sum-of-theparts value. This suggests the market is no longer viewing Zeder as merely a proxy for Pioneer. Of course, a more even portfolio balance would probably be welcomed — particularly since the smaller investments appear to have reached exciting junctures in their development trajectories.

Zeder CEO Norman Celliers is at pains to stress that Zeder will not contemplate unbundling the Pioneer stake — preferring rather to “balance” the portfolio by growing the other investments.

Capespan, which can make juicy profits under the right circumstances, and Kaap Agri, which has the potential for strong organic growth, are the likely “big growers” in the Zeder portfolio. Both are capable of making sizeable acquisitions.

The big question is whether Zeder intends concentrating on growing its existing investments, or whether major shareholder PSG will back the company in making a large acquisition. If a large acquisition is being contemplated it is likely that Zeder will need to embark on a rights issue to raise fresh capital.

PSG last year swapped a lucrative management fee arrangement for a bigger holding in Zeder. One suspects that PSG will probably want Zeder’s executive team to do a bit more than just sweat the existing investments.