Anthony Clark: Selling the farm

One-time racehorse is now more like a broken-down old nag on its way to the glue factory

Asudden twist in the news flow changed my column this month. Out of the blue after the market close on September 9, a bombshell news release from Zeder Investments got my heart racing and my mind buzzing.

I’ve covered Zeder since its listing by PSG Group in 2006 at 135c and have been highly critical of it over the past two years. In my August 2019 IM column, I called for it to be wound up and sold due to its underperformance and widening discount.

How did it all go wrong for a business that started so well? For its first few years of listing Zeder did what it was supposed to do. It bought stakes in undervalued, mainly agricultural businesses, most of which traded over the counter. It then cajoled management to enhance the capital structures and investor returns. Its crown jewel was a majority stake in Pioneer Foods, SA’s second-largest food stock.

But that was the start of Zeder’s downfall. The stake was so chunky in its asset base that where Pioneer Foods went, Zeder followed. A series of earnings missteps and a weakening economy saw Pioneer fall from grace, followed by the Zeder share price and a fat widening discount to asset value.

Something had to give. In 2019 Zeder agreed to sell its stake in Pioneer to PepsiCo and in 2020 gave a sizable special dividend to shareholders including PSG Group, which owns 46% of Zeder.

But did Zeder have any relevance, post-Pioneer? Its biggest asset was gone. What remained, though interesting to agricultural sector followers, was seen by the wider market as uninspiring. The discount had widened to 67% by mid-May.

Some tinkering occurred in June and July when Zeder unexpectedly sold its 31% stake in Quantum Foods for R308m — only for this to start a bidding war which made Zeder’s 500ca-share exit seem disjointed.

The counter also undertook a share buyback, buying 77.445million shares for R180m. But the discount remained high.

In early September Zeder’s discount to its sum of the parts was 41% and if you stripped out the R1.1bn in cash, the actual asset discount was nearer 50%.

With majority shareholder PSG Group also slimmed down following the unbundling of the hugely valuable Capitec Bank stake, a pint-sized PSG Group also traded at a large discount and its own asset base was looking uninspiring. It needed a big idea to kick-start its own metamorphosis under the direction of CEO Piet Mouton.

One glaring area to release value was Zeder. The one-time racehorse was past its prime. In fact, I’d called on the old nag to be taken to the glue factory.

Maybe somebody agreed with me. A JSE Sens on September 9 said the tenure of long-standing CEO Norman Celliers was over: he was retiring and exiting the business on October 1. Odd, as Zeder was due to announce its interim results on October 7.

Zeder added that there was a “potential change in strategy”. No other details were forthcoming.

I worked late to get an opinion note out, expecting Zeder to rally hard the next trading day. On opening on the 10th Zeder ran 15% in hefty volume as the market salivated at the potential value unlock of a share that had been trading at 225c but had assets worth nearer 380c. I expect Zeder to be dismembered.

I can see Capespan and The Logistics Group being sold; both have inherent value that I see as attracting trade interest and both are in the Zeder books at conservative valuations of some R2.1bn.

Zaad, the largest asset, is worth R2bn. It has a valuable seeds genetics business and is ideally suited to being inside PSG Alpha, the PSG Group private equity business. The 41% stake in Kaap Agri worth R600m I see as being unbundled to shareholders.

Pay out the cash as a special dividend, wind up and delist the business. I think Zeder’s shelf life ended two years ago. ●

“Some tinkering occurred in June and July when Zeder unexpectedly sold its 31% stake in Quantum Foods