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What's going on with Zeder?

by , 21 April 2022
What's going on with Zeder?
Zeder is a little investment holdings company on the JSE. For years it was a core shareholder in Pioneer Foods (acquired by PepsiCo). It also holds a number of other interesting agricultural businesses as well…

But the company's share price is down 62% in the past five years.

What's going on? And is there an opportunity to profit?
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Why Investment holdings companies are out of fashion right now
Investment Holdings companies like Zeder are thoroughly out of fashion right now.

Most of these businesses trade at 20%, 30% and even 50% discounts to their underlying assets.

A decade or two ago, before ETFs took off, they offered investors an easy way to diversify and own a number of stocks and companies with one share… But
ETFs have now taken over the role.

In addition to this, the management teams behind many of the holding companies charge large fees, and often it just becomes uneconomical to manage these companies if they aren’t of a large enough size...

Private Equity has also boomed in recent years, growing more than 14% in 2021 to $1.2 trillion, thanks to low interest rates and low valuations on listed companies.

Private equity companies have acquired many listed stocks, being able to profit from them in an unlisted environment.

But this is certainly not the only reason for the decline in Zeder’s share price… Rather – it sketches the background for the decline.

How Zeder is dismantling its business to unlock value
Over the last number of years Zeder has sold off a number of its assets.

Since the company has traded between 15% and 40% discount to its underlying value – it has made sense to sell its underlying businesses and return the capital to shareholders.

In April 2020, the company paid a massive 170cps special dividend as it sold off its stake in Pioneer Foods and received a huge cash injection.

Since then, the company has paid off its more than R1.5 billion in debt.

It then sold off its holding in Quantum Foods, also a listed food producer in 2020/2021.

More recently the company has unbundled its holding in Kaap Agri as well as selling The Logistics Group.

The proceeds of selling The Logistics group means shareholders receive a 92.5cps special dividend on 9 May 2022.

Shareholders also received 1 Kaap Agri share for every 49.22 Zeder shares they owned. Kaap Agri shares trade at R46.90 and are up 28% in the past twelve months.

So, what is left of Zeder?

Zeder still owns three businesses.

The first is Zaad. Zaad is one of the largest seed companies in Africa. It supplies seeds to the agriculture industry, continuously investing in improving yields and providing a better product.

It owns businesses like Klein Karoo Seeds, African Seeds Group, Seedcor and Farm-AG an agricultural chemicals business. Zeder owns 96.9% of this business.

The second business Zeder still owns is Capespan.

Capespan is a leading global distributor and producer of fresh produce. Its main products are grapes, citrus, apples, and pears. It packages and export these to countries around the world, but predominantly Asia. The business has a lot of potential but has not seen any growth since 2019. Zeder owns 94.6% of this business.

Lastly, Zeder owns Agrivision Africa. This is an agriculture business in Zambia.
Initially it was touted as Zeder’s future growth business. But it hasn’t delivered at all. Zeder has impaired its value from R591 million in 2018 to its current R146 million. The business owns around 21,322Ha of agricultural land in Zambia. 4,635Ha of this is irrigated. It grows soya, wheat and maize. The business also owns a mill that can produce 60,000 tonnes of milled maize and 16,000 tonnes of milled wheat annually. Droughts and tough conditions have plagued the business in the past couple of years with volatile earnings. But in the past year the company reported $7.2 million in recurring headline earnings – meaning it does show upside potential.

Zeder only owns 56% of Agrivision

Combined these three businesses are worth around R3.265 billion to Zeder’s bottom line.

In addition to this, Zeder still holds more than R1.8 billion in cash.

This puts the value per Zeder share at around R3.62. Its current share price is R2.81.

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What does the future hold for Zeder?

With Zeder selling off so many assets the company has shrunk, and is a lot smaller today than a decade ago.

It is however still valued at more than R4.3 billion.

I expect the company will try to improve the valuations on Capespan and Agrivision Africa in the coming two years.

And if it does, it will likely sell off these assets and could delist.

Alternatively it will keep Zaad – and try to transform this business into a global seed supplier, which it has the potential to become.

At its current price, I’m not a buyer of the stock, and would like to see some more urgency from management in unveiling their long term plans for the business.

Here’s to unleashing real value

Francois Joubert,
Editor, Red Hot Penny Shares

PS. 
Look here to find real value in the stockmarket.


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