Zeder considering unsolicited offers, analyst predicts what could be sold

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It is important to realise that Zeder has not changed its strategy, says CEO Johann le Roux.
It is important to realise that Zeder has not changed its strategy, says CEO Johann le Roux.
  • Zeder, which invests in agribusiness, announced its results on Wednesday.
  • It has received a number of "unsolicited approaches", said CEO Johann le Roux.
  • Analyst Anthony Clark predicts what, in his view, could be sold off.


Due to a material change in its size, Zeder, a JSE-listed investor in agribusiness and related industries, has reconsidered its strategy and the board is considering "unsolicited third-party approaches" regarding some of its portfolio investments, according to CEO Johann le Roux.

He did not provide more detail when Zeder announced its financial results for the financial year to February 2021 virtually on Wednesday.

Analyst Anthony Clark of Small Talk Daily Research believes it could be its logistics company and Capespan that Zeder might sell off.

"We are looking at unlocking value. The strategy does not have a timeline. We will do it in a responsible manner to unlock shareholder wealth and do what is right by our shareholders. During the financial year, the disposal of Zeder's investments in Pioneer Foods in March 2020 and Quantum Foods in June 2020, as well as the declaration of a special dividend, resulted in a material change to the size and composition of the Zeder group," explained Le Roux.

"This has necessitated the Zeder board to reconsider the company's future strategy. We remain focused on growing our investment portfolio and will evaluate opportunities as and when deemed appropriate."

According to Le Roux, the Zeder's portfolio companies are well positioned to benefit from improved agricultural conditions, which resulted in some enhanced valuations. Zeder's underlying investment portfolio was valued at R5.72 billion on 28 February 2021.

Zeder measures its investments in terms of the sum-of-the-parts (SOTP) value, namely with reference to the fair value of each investment rather than the consolidated profitability of Zeder itself. During the financial year, Zeder's SOTP value per share - calculated using the quoted market prices for all JSE-listed investments and valuations performed for unlisted investments - decreased to R4.33. 

Le Roux said the decrease was mainly due to the payment out of cash reserves of a special dividend of R230 per share in April 2020. The company has also declared an additional special dividend from income reserves of 20 cents per share. 

Le Roux said that, despite an improvement in the climatic cycle during the year, the macro-environment in which Zeder and its portfolio companies operate remained largely constrained.

"Our strategic focus during the coronavirus pandemic was deliberately cautious and conservative. Accordingly, we dedicated most of our efforts to existing investments, strengthening their operating models and balance sheets where possible, while driving additional and diversified growth from within the existing investment platforms," said Le Roux.

"It is important to note that the uncertainty around the global coronavirus pandemic remains and the main effects of Covid-19 on Zeder's portfolio are currently being experienced on the supply chain side of operations, with disruptions and delays in international trade."

Not surprised

Clark says he had written as far back as September 2020 that some form of value unlock would occur.

"We saw today that Zeder has confirmed they had a number of unsolicited approaches and I have been aware of that for quite some time from 'whispers' in the trade. And they announced a 20 cents special dividend which will cost them R308 million," said Clark.

In his view, Zeder will still have a very healthy cash balance moving into the first part of the financial year. 

"We now wait and see what Zeder will do regarding the unsolicited approaches for parts of the business. I have gone on record stating that I believe that Zaad, which they trimmed in value by 1.2%, is a crown jewel inside Zeder. I believe the PSG group, under its private equity division PSG Alpha, would like to keep that asset for themselves. But of course it all depends on the offers that have been made," said Clark.

For him the two standout features that could be for sale by Zeder are its logistics company and Capespan. The logistics company supports operation, formerly inside Capespan, and has assets in Durban and Cape Town. It has seen a material revaluation year-on-year, which Clark expected.

As for fruit distribution and fruit manufacturing business Capespan, Clark points out it has invested very heavily in their own fruit production in Namibia and SA over the last few years.

"This is now 'bearing fruit' - pardon the pun," says Clark.

Apart from believing that the logistics company and Capespan could be sold off, Clark thinks subsidiary Zaad, which invests in the specialised agri-inputs industry, will "go into" PSG. 

As for Agrivision, the Zambian agricultural operation, Clark describes it as having been "a disaster from day one".

"Operating in Zambia is notoriously difficult because of government regulation and government red tape," said Clark. The valuation of Agrivision has been cut back to R146 million. At some point it was worth about R620 million. For Clark this shows that moving into commercial farming in Zambia has been "an unmitigated disaster for Zeder".

Clark said he was happy with the movement in the share price of Zeder on Wednesday morning. His target valuation published on Monday was an upgrade from his previous valuation of a minimum target value of R3.50 to R3.60. To him that looks justifiable should further corporate transactions or value unlocking in Zeder occur.

Outlook

Le Roux told Fin24 that it is important to realise that Zeder has not changed its strategy. It has always been to create value for shareholders.

"We must either grow our underlying investment portfolio, grow dividends for shareholders by improving cash flow, or realise assets at good values over time. If one can get those three right or a combination of them, you create value for shareholders," he said.

"It is very important to note that we won't sell an asset just at any price. We were approached and we are doing evaluations. We are not in a desperate position. We will only make a decision if it makes sense for shareholders. Our portfolio is in a good place and resilient and remains our focus.

He admits that the investment in Zambia is under pressure, but says the company has a good relationship with its investment partners there and will only make decisions in consultation with them. The Zambian investment represents less than 2.4% of Zeder's SOTP.

By mid-afternoon on Wednesday, Zeder's share price was up 9.19% at R3.09.


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