Zeder: ripe for the picking
One of the PSG group’s more disappointing ventures might finally be set to reward long-suffering investors
ý The scepticism reserved by the market for value-unlocking efforts by investment companies continues to astound, even when there are clear plans to shake things up.
Take PSG-aligned Zeder.
Last week, it issued a cautionary notice, conveniently coinciding with the release of vibrant numbers for the year to end-February, advising of “third-party approaches on various portfolio investments”.
A move to unlock value follows major structural changes to Zeder’s portfolio in the past 18 months. Acting CEO Johann le Roux says: “The disposal of our investments in Pioneer Foods in March 2020 and Quantum Foods in June 2020, as well as the declaration of the substantial special dividend, resulted in a material change to the size and composition of the Zeder group. This has necessitated the Zeder board to reconsider the company’s future strategy.”
The mainstay components of Zeder’s portfolio are its controlling stakes in unlisted businesses including Zaad, Capespan and The Logistics Group (TLG).
It’s not impossible that Zeder is also entertaining offers on its major stake in JSE-listed Kaap Agri, which might be coveted by any number of large retailing enterprises. But the FM doubts that there is much interest in its low-yielding Agrivision operation in Zambia.
There’s not much additional detail on the developments, but Le Roux says these offers are being evaluated by the board with a potential strategy shift towards additional value-unlock options.
Le Roux says the strategy does not have a specific timeline, and he emphasises that the ultimate outcome might not necessarily mean the end of the Zeder group as a listed entity.
The FM, on the other hand, can’t see a longterm future for Zeder — not since the holding in Pioneer Foods was sold to PepsiCo.
Realistically, Le Roux concedes it could take a few months to bring any bids on portfolio assets to book. “We certainly don’t want to create the impression we are in any way desperate sellers. Our intention is to maximise shareholder wealth.”
For the deep-value investor, Zeder will still hold interest. But the discount is likely to remain stubbornly high until another investment is sold.
The one hitch in these deliberations with unnamed third parties is that Zeder cannot use its cash pile to buy back more of its own shares.
That’s a great pity, because the admission around unsolicited thirdparty offers hardly sparked Zeder’s stock.
The price, which has shifted up 10% since the release of the cautionary and the results, still offers a discount of close to 30% on Zeder’s latest sum of the parts (SOTP) value of 437c a share.
Still, over one year the share has gone up a not inconsiderable 67%.
There might be two factors informing the discount: a potentially drawn-out sales process and continued scepticism around management’s valuation of the key unlisted investments.
On the latter, Zeder does try to address investor concerns by giving a fair whack of financial detail on the individual unlisted investments in its latest presentation.
For the deepvalue investor, Zeder will still hold interest. The discount is likely to remain stubbornly high until another investment is sold
On the former, investors should ask if exploratory talks around possible disinvestment with unnamed third parties have reinforced the stated values of Zaad, TLG and Capespan.
Seed and agri-inputs business Zaad is by far the biggest portfolio component, with a value of more than R2bn.
Zeder disclosed a
R2.9bn revenue line for
Zaad in the year to end-January, with earnings before interest, tax, depreciation and amortisation (ebitda) coming in at
R379m and recurring headline earnings at R181m.
Zaad still carries net debt of almost R1.1bn, which is why there have been murmurings that the business might be slated for a listing on a European bourse.
Whether a local group like Omnia Holdings might look at Zaad is debatable. The business does not easily slot into the numerous unlisted agri-services businesses either. But offshore interest from large agri-multinationals, especially considering Zaad’s emerging-market appeal, seems highly likely.
Zeder’s interests in Capespan is now valued at almost R1.2bn. The fruit marketing and farming group resumed profitability after restructuring its global marketing business, markedly lowering its cost base and delivering an improved performance from its farming ventures.
Capespan showed R3.5bn revenue in the financial year to end-December, with ebitda of R148m and recurring headline earnings of R76m. Once again an offshore suitor seems more likely — remembering that Capespan, which has split off its logistics business, was once coveted by Irish fruit and vegetable company Total
Produce.
There is marginal debt of R52m in Capespan.
TLG, which once formed part of Capespan, was arguably Zeder’s star performer, with ebitda of R372m from revenue of R1.1bn in the year to endDecember.
Recurring headline earnings came in 12%
higher at R142m.
In the FM’s opinion, TLG is the most marketable investment in Zeder’s portfolio. Its strong cash flows and strategic value in its terminal operations could attract private equity investors, and TLG might even appeal to Grindrod (with its renewed focus on ports, terminals and logistics).
TLG’s operations — particularly FPT (terminals and port logistics services) and Tradekor (bulk handling and loading) — took strain during the hard lockdown. But Le Roux says a sharp V recovery is continuing into 2021, with exciting growth prospects in Sub-Saharan Africa.
Zeder gave the value of its TLG investment a 30% lift to more than R1.3bn, which might not only reflect the improved performance and prospects but also valuations framed by unsolicited advances from third parties.
The bottom line: if Zeder can flog its three main unlisted assets for the values reflected on the SOTP register, the collective proceeds (about R4.5bn) will come close to matching the current market capitalisation.
So Zeder presently offers its majority shareholding in Kaap Agri for free, along with a remaining cash pile of about R650m (taking into account the latest special dividend and dividends paid in by Capespan and TLG).
If the stake in Kaap Agri can be unbundled and the pesky Agrivision situation quickly resolved (or ring-fenced), Zeder might quite possibly offer a fairly rapid value-unlocking opportunity to investors.