There are but a handful of agriculturally aligned businesses on the JSE, with PSG-controlled Zeder Investments — which has exposure to fruit farming and marketing as well as seeds — arguably the default option for investors interested in this earthy niche.
Crookes Brothers has been listed on the JSE for more than 60 years, but hardly registers with investors. The company’s relative obscurity might be due to two factors — its longstanding legacy as a sugar producer and the absence of a decent free float of shares.
The first issue is easy to address. Crookes has supplemented its sugar farming core with ventures in bananas, deciduous fruit and macadamias. There is also a sprawling property division, which redevelops land for residential use, as well as a crocodile farm snapping up tourist money.
At top line, sugar accounts for about 62% of group revenue. Bananas and deciduous fruit bring in about 30%, with macadamias — now only 4% of revenue — expected to grow into a more substantial hub in the years to come.
At profit line, sugar is by far the dominant earnings engine.
Revenue from sugar increased 6% to R391m, with a marked recovery in prices in all geographic locations. There seems no doubt that sugar will remain the profit underpin for the foreseeable future, especially with firmer prices expected to continue for the next 12 months. Operating profit from sugar cane operations was up 35% to R129m.
Making sense of the group’s recent diversification efforts might be a little difficult, considering it sold the High Noon deciduous fruit farm in the Western Cape for R95m (but at a loss of R55m). Deciduous fruit has proved a difficult crop to profit from, and perhaps this disposal acknowledges that the segment might not play a significant role for Crookes in the future. That said, the group also sold its Strathmore sugar cane farm in Mpumalanga for R16.5m, as well as four portions of the Riversbend farm in the Nkwalini Valley of northern KwaZulu-Natal for R32.5m. Negotiations with buyers for the sale of the remaining portions are at an advanced stage.
The group says the sales represent a key milestone in its strategic drive to dispose of certain underperforming assets and to deploy capital into projects that meet return expectations. One might reasonably presume "return expectations" have become markedly different since new influential shareholder Silverlands started ringing the changes — most notably at leadership level at Crookes.
Interestingly, Silverlands recently also bought a meaningful stake in another JSE-listed agribusiness, Quantum Foods. Clearly this strategic investor has an eye for undervalued and underappreciated agribusinesses.
IM expects Crookes to benefit from an operational tweaking. Initially there has been a focus on reinforcing the balance sheet (and more asset sales are possible), but more importantly also opening up of the cash-flow taps.
For the record, interest-bearing debt (net of cash balances) was chopped from R269m to R145m.
Finance costs sank by more than 20% to R35m.
More impressive, though, was that cash generated from operations (before working capital changes) was R99m, and net cash flow generated more than doubled to almost R53m. On a per-share basis cash flow came in at 344c a share, which should placate any concerns about Crookes reinstating its dividend.
One also can’t underestimate the importance of Crookes steering its property segment, Renishaw, through the pandemic’s dangerous lull. Management was successful in reducing net working capital required by the project, while profit projections were displaced by the closure of the deeds office (which delayed the transfer of completed units to purchasers and consequently the payment of sales proceeds).
While property profits were smacked, the real estate segment remains an important value driver for the future. Crookes says significant value was created in the property division with of the Spatial Planning & Land Use Management Act approval for Phase 3 of the Scottburgh Interchange being granted. A December 2020 valuation by an independent international valuator, which took account of this approval, placed a value of R39m on the Renishaw Coastal Precinct. The group believes the sale of land parcels "can now begin in earnest".
Crookes reflects an NAV of more than R70 a share. The share price will be more reflective of this number when the banana (storm damaged this time) and deciduous fruit (which includes a share in the Two-a-Day marketing co-operative) as well as the macadamia farming venture kick in more convincingly.
While the macadamia venture has been slower than expected, the banana segment is peeling some decent profits — especially the group’s share of profits from its associate companies Lebombo Growers and Quinta Da Bela Vista, which chipped in R13.6m.
A potential grower for patient small-cap pundits.
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