WHAT discount should the share price of agribusiness investor Zeder be offering on its underlying portfolio?

Let’s reiterate Zeder’s status as a hybrid investment company: its various stakes reflect anything from influential holdings to outright operational control. Admittedly when it listed in 2006, a founding statement stipulated a maximum stake of 25% in any company and no single investment representing more than 25% of the portfolio.

But a well-documented setback at liquor group KWV prompted Zeder to pursue a more active investment tack: Zeder is no longer a passive investment company merely looking to extract value from undervalued or neglected agribusiness positions. It is now looking to nurture and grow long-term strategic investments.

Yet at the time of writing the discount that Zeder’s shares offered was a fairly gaping 21% on the sum-of-the-parts (SOTP) value of 715c/share estimated by the company at October 2.

This estimate must be taken with a pinch of salt because Zeder does not factor in the rather large management and performance fees that need to flow out to parent company PSG. Still, the discount is wide compared with the more generous valuations that have been applied to other listed investment companies lately, like Remgro, Sabvest, GPI and HCI.

It’s worth noting that Zeder’s 31.7% holding in Pioneer Food Group accounted for 487c/share, or roughly 68% of the stated SOTP value. Put another way, the R7-billion holding in Pioneer makes up 85% of Zeder’s price.

If we tally up Zeder’s latest valuation of its 72.1% stake in fruit marketer Capespan (R1.46-billion) and its 39.9% of farmer’s retailer Kaap Agri (R582-million), the collective value of these holdings is over R2-billion or close to 140c/share.

So should we deduce that the market has deemed Zeder a proxy for Pioneer, and from that not attach much value to the rest of the portfolio?

Older readers will remember the market applied this type of logic to tech-aligned investment company Venfin in relation to its holding in Vodacom, despite chairman Johann Rupert’s prophetic warning that the company — which owned stakes in Alexander Forbes, Dimension Data, Fundamo and e.tv — was more than just a proxy for cellular services.

I reckon it’s harsh to place a value of just R1.85-billion or 128c/share on the remaining pieces of Zeder’s portfolio.

If we tally up Zeder’s latest valuation of its 72.1% stake in fruit marketer Capespan (R1.46-billion) and its 39.9% of farmer’s retailer Kaap Agri (R582-million), the collective value of these holdings is over R2-billion or close to 140c/share. In other words, the majority stake in Pioneer coupled with the holdings in Capespan and Kaap Agri (which are both perennially profitable companies) is around 600c/share even if we strip out larger management and performance fees due to PSG.

Of course, that would also imply that investors buying Zeder shares at the current price are getting the holdings in the company’s two operational businesses — Chayton Africa (a Zambian commercial farming enterprise) and Zaad (a specialist seed business) gratis. Paying zip for Zaad might be a great bargain. Zeder’s interim results don’t betray a great deal of excitement about Zaad, but PSG and Zeder chairman Jannie Mouton has recently waxed lyrical about the seed businesses.

The divisional breakdown shows that Zaad chipped in R20-million in half-year earnings and if we assume a stronger second-half, then the last full financial year’s R50-million earnings contribution should be comfortably exceeded. What’s more, such a performance strongly underpins what appears to be a modest valuation of the Zaad business, not to mention opportunities for corporate action.

Chayton, however, is still in development, and Zeder has retained its R560-million cost-based valuation on the fledgling enterprise for consecutive reporting periods. Chayton is worth roughly 38c/share to Zeder and as such represents a small segment of the portfolio where investors need to wait and see.

So is Zeder offering a decent enough discount? Yes, I’d say so, particularly if directors apply their minds to a more generous dividend policy to placate the Agri Voedsel shareholders who were recently brought aboard, some kicking and screaming.

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