Zeder was a good idea at the time. The time was 2006, and parent company PSG Group saw great opportunities in South Africa’s agricultural sector — which had (then) undergone sweeping changes as the old farmers’ co-operatives transformed into public companies.
Initially a co-operative strove to deliver services and products at the lowest possible price to its farmer members. But the “corporatised” co-operatives now had an additional role — providing returns to shareholders (the erstwhile farmer members).
This is where Zeder would step in. Zeder hoped shareholders in new agricultural entities would sell/swap their shares into Zeder, gaining a stake in a more diversified agricultural investment company that would bring the necessary corporate savvy to the table.
Zeder enjoyed some success — effectively taking a kingmaker stake in Pioneer Foods (which was sold at a handsome profit to Pepsico several years ago) and a commanding stake in JSE-listed agri-services giant KAL Group (subsequently unbundled). Less successful was the tilt at KWV, where plans to merge the iconic brandy and wine business into Pioneer’s Ceres Beverages was stymied by resistant shareholders. Other tilts also fizzled out.
After the Pioneer/Pepsico transaction, Zeder — trading at a hefty discount to its sum-of-the-parts (SOTP) value — understandably opted to unlock value for shareholders by disposing of the remaining investments.
Shareholders have been treated to a series of special dividends — the latest being a 20c a share (roughly R308m) payment announced earlier in February.
But there is still a sizeable chunk of agri-assets left over. Zeder’s remaining assets are its 97.2% stake in seed and agri-chemicals business Zaad as well as the old Capespan pome farming operations valued at R540m. The cash pile — if we subtract the dividend due shortly — is about R400m (though how much will be needed to fund the pome farming unit is not entirely clear).
At last count (end-August 2023) the Zeder board, officially, remained “engaged with third parties on the remaining portfolio investments and continues to assess further wealth maximising strategies in a responsible way”.
The group added that it would evaluate opportunities “as and when deemed appropriate in the interest of all stakeholders”.
At this juncture, IM — presuming the pome farming business can be disposed of in the next 18 months — regards Zeder as a straight proxy for Zaad. The Zaad stake is valued at more than R2.4bn — accounting for almost 90% of Zeder’s market capitalisation.
It would be significant if Zeder opted to change its corporate identity to Zaad, but that might be jumping the farm gate too soon.
While Zaad — which has a strong local presence as well as operations in selected offshore markets — is an intriguing asset, Zeder provides only limited financial and operational information on the subsidiary.
The interim report stated that Zaad reported a decrease in recurring earnings to R219m for its financial year ended June 30 2023 compared with R240m in the previous period.
Zeder listed promising performances from Agricol, Farm-Ag (agro-chemicals) and May Seed (Turkey) as well as an improved performance from East African Seeds. The performance from the African operations and Bakker Brothers was less encouraging.
Zaad’s key Agricol operation enjoyed another good period with South African farmers benefiting from low international supply and sunflower seed shortages that were also supporting local canola and soybean oilseed crop prices.
What’s more, Zaad said there were strong indications that South Africa would experience a dry El Niño weather cycle that could potentially favour sunflower sales.
Chemicals business Farm-Ag achieved satisfactory results with supply from China and India normalising and managed to increase its local footprint with new registrations.
Significantly, Zeder was happy to advance a bridge loan of R100m to Zaad to increase its stake in Turkey-based May Seed. This might not be the body language of a shareholder that is dead set on selling off Zaad.
In that regard, Zeder’s interim commentary reckoned the specialised agri-inputs market — especially the proprietary hybrid seed segment — remained attractive.
While agribusinesses are subject to the vagaries of weather, wild swings in soft commodity prices and changing consumer demand patterns, Zaad looks an interesting longer-term prospect. Certainly, it would more than justify a standalone listing on the JSE and possibly — with a few more smart acquisitions internationally — warrant being floated onto a global bourse.
The R2.4bn question, however, is whether PSG — which remains the largest shareholder in Zeder — would rather take Zaad/Zeder private. One option would be to pitch a buyout offer to Zeder shareholders — perhaps after the payment of one or two more (small) special dividends.
After the payment of the latest special dividend Zeder’s SOTP value will be about 230c a share. If the discount persists post-dividend, would 200c a share be enticing enough for Zeder’s minority shareholders to bail out … and give PSG enough upside to either sell or grow Zaad in an unlisted environment?
IM would prefer Zeder to morph into Zaad, and grow out as a listed company on the JSE. PSG, on the other hand, may wish to close its drawn-out agribusiness chapter … at least to further public scrutiny.
Marc Hasenfuss
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