Agribusiness-focused investment holding group Zeder, which is mulling over offers for parts of its portfolio, says it is pleased with the resilience of its companies in which it is invested, with climatic conditions and strong demand for commodities boding well for SA’s agriculture industry in coming months.
Rising fuel prices, supply chain disruptions and input costs such as fertiliser were all threat to profits, Zeder CEO Johann le Roux told Business Day, but overall sentiment remained good, and after recently faring well many farmers had cash and are looking to put it to use.
SA agriculture has been one of the few sectors of the economy to fare well during Covid-19, with inclement weather in major production areas such as the US and Brazil coinciding with robust demand for commodities such as soya, wheat and maize.
Even though SA's economy suffered its worst contraction since the World War 2 in 2020, contracting 6.4%, agriculture managed growth of 13.1%.
Le Roux said confidence in the industry had also improved as policy uncertainty waned. “About two years ago land expropriation was a major concern,” he said, “But that has gone a bit quiet, and it doesn't look like it will materialise in the way it was initially thought,” said Le Roux.
Zeder, part of the PSG Group stable founded by Jannie Mouton, had an underlying portfolio worth R6.1bn to end-August, up 7% from its year to end-February. The group is receiving a boost from strong global demand for a range of agricultural products and better weather, underscored by record export volumes for SA’s citrus industry.
Climatic conditions, such as rainfall, remain favourable, Zeder said on Wednesday, with the forthcoming wheat and grape seasons in the Western Cape looking promising. After a good winter, dams were still full in that province, which suffered drought conditions in 2018.
Conditions were also looking good in the northern parts of SA as summer rainfall months approach, said Le Roux, given the current La Niña cycle, which tends to bring above-normal rainfall. La Niña is a climate pattern that describes the cooling of surface ocean water, altering temperature and rainfall patterns. The opposite, El Niño, prevailed until fairly recently, resulting in years of drought in a number of regions, including SA.
Value gain
The group’s biggest investment is a 97% stake worth R2bn in Zaad, which imports and distributes a broad range of agricultural seeds and chemicals with a focus on emerging markets.
The group also owns R1.43bn of The Logistics Group (TLG), which provides transport services, and a R1.1bn stake in JSE-listed trade and services group Kaap Agri.
Kaap Agri saw a R289m fair value gain during the period, while TLG added R105m, benefiting from robust demand from exporters, but also higher demand for imports, such as fertiliser.
“On a relative basis, our portfolio of companies appear to be better positioned than most companies with regards to the Covid-19 risks,” said Le Roux.
“It, however, remains difficult to predict the business environment that will unfold in the short to medium term,” he said.
Unlocking value
The group is unlocking value from its underlying assets, which follows the successful disposal of its stake in Pioneer Foods for R6.41bn in March 2020 and its disposal of its stake in Quantum Foods for R308m three months later.
This allowed the group to declare special dividends totalling R4.23bn for its 2021 year, when it also bought back R426m worth of its shares, about 10%.
Zeder said on Wednesday that it had received approaches from third parties for some of its investments, and while good progress had been made, Covid-19 had in some cases led to delays.
The group’s sum-of-the-parts valuation rose 2.8% from end-February to R4.45 per share at the end of August, when its shares fetched R3.15 — about a 30% discount.
Small Talk Daily’s Anthony Clark said he had been bullish on Zeder since it announced its strategic change of direction in September 2020, but questioned why it was taking so long, even during a pandemic. Zeder has been trading under cautionary since April, when it said it had “several approaches from third parties”.
“All in all, fair results, no great shakes regarding news,” said Clark. TLG and fruit producer and seller Capespan, together valued at R2.5bn, were the most likely businesses being considered for sale, Clark added. TLG was well run, and would fit in well within any other existing logistics organisation, while Capespan had been restructuring for years, he said.
In afternoon trade on Wednesday Zeder’s shares were 4.4% higher at R3.30, having risen a quarter so far in 2021.
Update: October 6 2021
This article has been updated with new information throughout, together with more recent share data.
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