Time to sow some new seeds
Zeder’s Zaad division could be the next big thing in agri listings, but much still hinges on Capespan and parent PSG
● Three recent developments might make Zeder Investments — which has ploughed through several opportunities in the agricultural sector in the past 15 years — a more interesting entity. And there’s the potential to launch a significant new business in the next few years too.
First, Zeder was the one listed component not slated for unbundling by investment group PSG as part of a restructure that will result in the Stellenbosch-based icon leaving the JSE. The FM believes PSG’s next big thing (after Capitec Bank and Curro Holdings) might well come out of a newlook Zeder.
Second, a sizeable slab of capital — 92.5c a share, to be precise — is being returned to Zeder shareholders next month. And third, Zeder recently unbundled its holding in JSE-listed Kaap Agri, a specialist retail and services company plying its trade mostly in farming communities.
The unbundling and capital distribution will help focus investor attention on the remaining value in Zeder — mainly sprawling seed business Zaad — which is valued at more than R2bn. Then there are the holdings in fruit marketing giant Capespan, Zambia-based Agrivision, the remaining cash pile and a sizeable loan to Zaad making up the balance of the value equation.
The portfolio does look a little scant, given that in its heyday Zeder held investments in Pioneer Foods, Kaap Agri and KWV, as well as a slew of old co-operativetype businesses. That said, investors should not lose sight of the fact that Zeder has in recent years returned, via special dividends and the Kaap Agri unbundling, 446c a share, or more than R7bn, to shareholders.
After the latest special dividend is paid, Zeder’s cash pile will fall from nearly R1.9bn to about R438m. That would reduce
Zeder’s sum-ofthe-parts (SOTP) value to about
R4.15bn, or about
270c a share. The share price, after the special dividend payment, will probably settle at about 200c-210c meaning a discount of about 20% to the SOTP. This discount is narrower than what’s applied to most of the JSE’s investment companies, and probably reflects market optimism that Zeder, despite withdrawing its long-standing cautionary notice, will be able to sell off its R1bn holding in Capespan. It may also, finally, clean up its messy affairs in Zambia (where the investment has been written down to under R150m).
Zeder CEO Johann le Roux says Zeder is talking to third parties. “As in the past, this will be dealt with in a responsible manner in order to maximise shareholder wealth.” Maybe it’s reading too much into the statement, but the FM wonders if any indicative offers for Capespan were short of Zeder’s R1bn valuation.
Capespan — which does have a volatile long-term profit history — did not produce a bountiful profit harvest in its last financial year. For its financial year ended December 31 2021, Capespan reported recurring headline earnings of R54m, down 29% from the prior year.
The business was hit by difficulties on the supply chain side, especially with increased shipping rates and the unreliable availability of containers hampering operations. Le Roux says the inefficiencies at most of SA’s ports remain the biggest concern in terms of the quality of fruit and resultant “time on the water” for a perishable product destined for export.
After last year’s unrest in KwaZulu-Natal, there is also now the damage from the recent flooding in the region to contend with. In short, it’s probably not the best time to be selling Capespan — especially not with Zeder accounting for a fair-value loss of R64m for its investment.
Small Talk Daily analyst Anthony Clark concurs. “Zeder will exit Capespan, but I do not expect that sale to be swift due to the nature of the business and the emotive scenario around agriculture.”
There have also been questions about why Zeder is still clinging to nearly R450m in cash, with suggestions that this remaining balance could have been used to pay a bigger special dividend.
But Le Roux stresses that with lingering Covid issues and the uncertainty presented by the war in Ukraine, Zeder needed to keep some capital back in case any of its companies needed a temporary shoring up, or to capitalise on opportunities.
One suspects Zeder would happily hurl more money at Zaad if the company uncovered more acquisition opportunities. Zeder has already given significant loans to Zaad, and Le Roux says this debt is likely to be converted into equity. This does show a certain confidence in Zaad’s prospects.
While Zeder has never really trumpeted Zaad, there are a number of investors in and around the PSG empire that have been whispering that this global seed business (which has operations in SA, Turkey, East Africa, Eastern Europe and the Netherlands) could become a major international agribusiness player. This would probably entail an international listing — which is understandable given that local investors are usually cautious about any “exotic” growth counters. For example, Zaad recently changed its year-end from January to June, “in order to better align the financial reporting requirements to fall outside the key summer crop cycle”.
In the six months to end-December, Zaad reported recurring headline earnings of R139m — an increase of 23% per share from the corresponding period in 2020. The half-year bottom line does lend considerable support to
Zeder’s R2bn valuation tag, but the seasonality of the seed businesses precludes making definitive assumptions around annualising earnings.
It’s important to note that Agricol and Farm-Ag (agrochemicals businesses in SA), May Seed (Turkey) and the African maize operations performed well — but that Bakker Brothers, based in the Netherlands, is still in a recovery phase after Covid limited cross-border trade into North Africa and the Middle East.
The post-dividend trading in Zeder will be interesting to gauge. Without corporate action and the slim chance of another special dividend, the market might well lose some interest.
Clark reckons that with Zeder at a 52-week high, certain types of funds and investors might prefer to cash in their chips, along with the unbundled Kaap Agri shares. “You could probably redeploy your funds somewhere better in the short to medium term.”
But for the patient investor, Clark believes it might be worth hanging in there. “There is a clear directionality for PSG Group to exit Zeder … Is that worth 50c a share or a bit more and probably a further special dividend from the Capespan sale? Sure, but patience will be essential.”
The FM hopes that investors in Zeder might treat the share as a proxy for Zaad’s eventual listing. This, of course, means PSG would not look to take out Zeder minorities ahead of such an event — which is why shareholders might need more nitty-gritty financial information on Zaad in the months ahead.
Of course, if Zeder manages to sell its Capespan and Agrivision interests at acceptable terms this year, the company would become a pure play on Zaad, which would be a most intriguing twist.