Some listed companies can be said to be “long in the tooth” when their prospects are diminishing.
This is the case for agricultural investment fund Zeder Investments which, for all intents and purposes, can be said to be in wind-up phase.
Listed in 2006 at 135c, Zeder championed the value unlock mantra that saw the investment business founded and managed by PSG Group raid the highly undervalued agricultural sector, scooping up stakes in a swathe of lowly valued but asset-rich over-the-counter (OTC) businesses.
Initial trading of the fund helped the stock to trade at a premium as investors valued the ability of management and the PSG tenacity to acquire stakes in undervalued regional agricultural co-ops, shake the tree and try to extract value. They were highly successful in the first decade of life.
This was either done by corporatising the former crusty co-ops or encouraging value creation from the juicy undervalued assets many held.
One of Zeder’s coups de grâs was acquiring a stake in Western Cape-based agricultural co-op Kaap Agri.
Aside from its underlying business servicing farmers and a growing retail footprint, Kaap was the largest single shareholder in OTC-listed Pioneer Foods. Pioneer was SA’s second-largest food company and its value was trapped within Kaap.
Zeder encouraged the unbundling of the stake and the investment company in the process became the majority shareholder and king maker in the food combine. Pioneer was eventually sold to US business Pepsico in March 2020 for R26bn.
This netted Zeder a huge windfall that it then paid out in the form of a 230c special dividend to shareholders, of which PSG was the largest recipient.
This could be classed as the swansong for Zeder. Stripped of its largest and most valuable asset, the remaining assets simply could not move the needle. Most were unlisted; only Kaap Agri was a JSE-listed entity. The market questioned the need for a listing at all for Zeder.
Investment holding companies have for some years traded at discounts to net asset value (NAV). In Zeder’s case, as much of its portfolio was illiquid, unlisted or misunderstood, the discount at it worst was more than 60%. Shareholders as well as PSG despaired.
In September 2020 everything changed. PSG embarked on a strategic portfolio review of Zeder, which the market interpreted as putting a for sale sign on the fund.
On the strategic review announcement the discount narrowed and over the past two years Zeder has become a shadow of its former self.
Carved from fruit business Capespan, Zeder sold off the ports and logistics business TLG to private equity in November 2021 for R1.6bn.
At Zeder’s February 2022 year-end it announced a further dissection of the fund.
The 42% stake in Kaap Agri was unbundled and a special dividend of 92.5c a share was paid to shareholders from the sale proceeds of TLG.
A total of R7.26bn or 446c a share has been repaid to shareholders from asset sales and the unbundling. The meat has gone from Zeder, the scraps remain.
Today, Zeder has three assets, of which only two can be considered to have any real attractions.
The sum of the parts (SOTP) in the rump is presently valued at R4.142m or 269c a share. With a ruling share price bumping at a near 52-week low of 178c, the discount to SOTP is 33.8%.
Since the February year-end special dividend and Kaap unbundling the discount has widened.
This is principally due to market concern that the remaining assets, seeds business Zaad (valued at R2.3bn), fruit and wholesale company Capespan (valued at R1.1bn) and poorly performing Zambian commercial farming asset Agrivision (worth R146m) will take time to be sold.
Zeder still holds R455m in cash and there is a high expectation that any further asset sales will see ongoing special dividends to shareholders.
At the July annual general meeting (AGM), management were reluctant to give any visibility to continuing asset sales. The market, sensing inertia to further value realisation, sold off the stock.
Despite inherent value left within the rump of Zeder, only patient investors should linger for an eventual payday.
IM sees Zeder as dead money. We cannot recommend a purchase as there is no timeline to further asset realisation.
The wide discount to SOTP will attract value investors. However, IM is resolute that Zeder’s days as a listed agricultural investment business are numbered. Its JSE-listing serves no purpose given the scant portfolio of now unlisted assets.
The Zeder share chart should not be seen as a guide as the precipitous decline in the share price was allied to the Kaap unbundling and special dividend payout this year.
At 178c, IM sees value, but only for those with virtuous patience. IM recommends investors sell Zeder and seek better opportunities for their money in the undervalued small- to mid-cap sector.
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