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Zeder shows healthy uplift

Drought conditions have hit profits, but valuations have risen.

Despite the drought and the elections in Zambia last year, Zeder subsidiary Agrivision turned a $1.3 million profit for the first time in its four-year history.

Achieving this result has been tougher than expected, and Zeder CEO Norman Cilliers is not popping the champagne yet, but these results have borne out the company’s faith in the investment. Agrivision’s milling and farming operations have reached a point of stability and should grow from this point onwards. Further investment is anticipated, but will not be rushed.

Cilliers was discussing Agrvision in the context of agricultural holding company, Zeder’s results for the year to February 28, which were released on Monday. The company reported recurring headline earnings per share up 0.5% from 42.4 cents per share to 42.6 cents per share.

“Given the tough operational environment in the sector, particularly the impact of the recent drought, we are honestly satisfied with what is effectively a sideways move,” he says.

The modest growth in earnings for the year resulted from tough trading conditions experienced at Pioneer Foods, Capespan and Quantum Foods, which were offset by commendable results from Kaap Agri, Zaad and Agrivision.

The results were also impacted by the higher number of shares in issue following the decision made last year to drop the management fee paid by Zeder to PSG, in favour of the issue of an additional 207 million shares to PSG.

Zeder opted to “take the hit” in one go, says Cilliers. Thus following the once-off management fee internalisation charge of R1.45 billion to the income statement, headline earnings per share and attributable earnings per share decreased significantly from 36.5 cents per share and 52.5 cps profit in the prior year, to a loss of 47.5 cps and 49.1 cps in the current year, respectively.

Zeder share chart

As difficult as this may be to digest initially, this will boost what are already healthy cash flows, enabling the company to use its balance sheet to fund further investments. Already borrowings have increased, pushing interest payments from R180 million to R232 million, says Cilliers.

In the previous financial year Zeder paid R155 million in management and performance fees to PSG. In these results the company will pay R75 million, which was incurred before the dispute around management fees was settled.

Zeder’s sum-of-the-parts valuation, also a key performance metric, saw a pleasant uplift. The SOTP value is calculated using the quoted market prices for all JSE-listed investments, and market-related valuations for unlisted investments, increased by 23.1% during the reporting period to R8.53 as at February 28 2017. At the close of business on Friday March 31 2017, Zeder’s SOTP value per share was R8.95.

The best performers were Pioneer, Zaad and profitable farming retailer Kaap Agri which is benefitting from considerable interest ahead of its proposed listing. Capespan was revalued downwards because the company is still seeing out the last of the El Nino effects says Cilliers.

Sum of the parts valuations:

Company

Valuation 29.02.2016  

Valuation 31.03.2017

Ownership

Pioneer

R7.54 billion

R10.3 billion

27.1%

Kaap Agri

R758 million

R1.32 billion

39.8%

Zaad

R1.24 billion

R1.53 billion

91.4%

Capespan

R2.03 billion

R1.97 billion

98.1%

Quantum

R168 million

R184 million

26.7%

Agri Vision

R614 million

R614 million

55.6%

 

The group continues to make small incremental investments where it sees opportunity. For instance the group acquired Loza Lodge, a guest house in Mkushi, Zambia through Agrivision; stevedoring company Port Services through Capespan and Groot Patrysvlei Farming operations, also through Capespan.

However it is the quiet growth of Zaad, under the watchful eye of former Zeder CEO Antonie Roux that bears watching.

In May 2016 Zaad acquired a 49% stake in Farm-Ag, one of the largest South African-owned formulators and distributors of crop protection chemicals, selling both locally and internationally. “This company fits very well with our African growth strategy,” says Cilliers. “In the African context where small scale farmers are emerging it is advantageous to be able to sell seeds with fertilizer and other growth chemicals.”

In August it acquired the laboratory division of Incotec South Africa which will support the research and development operations of Zaad.

And lastly, Zaad has just concluded an agreement to acquire 35% of Turkish seed company May Seed. “Turkey and its neighbours are among the largest producers of sunflowers in the world,” says Cilliers. “We have advanced proprietary technology in sunflower genetics and this acquisition fits with our strategy of exploiting our intellectual property in growth markets around the world.”

Zeder has declared a final dividend of 11cps, up from 9cps in the previous financial year.

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Always liked Zeder. Incredibly well run business.

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