Description

Zeder (ZED.JSE) is selling its assets and delisting. The current share price is R1.74 versus and NAV of R2.19. That implies a 25.8% upside which I think you can collect in 6 months as Zeder is trading under "official caution" following the appointment of bankers to help with approaches from interested parties.

SOTP

Zeder’s assets consist of 1) apple farms (Pome Investments), 2) a company which sells seeds across the world (Zaad) and 3) cash. There is no debt and no taxes are expected to be paid on the proceeds from disposal.

The following SOTP calculation has been provided by Zeder. I will work through these values later and raise the possibility that the SOTP provided by Zeder is too conservative.

Background

Zeder was essentially the agricultural arm of the extremely successful PSG group. PSG was taken private a few years back in a transaction aimed at unlocking the holding company discount for its investors.

PSG owns 48.6% of Zeder and is driving the process to unlock the holding company discount through asset sales before delisting. Most of the original assets have been sold and today only Zaad and Pome remain.

Pome (Own 87%)

Pome consists of 3 Apple farms and a fruit packhouse in the Western Cape valued at R585mil. These assets are not funded with any long-term debt.

The business recorded a record profit for the year ended Feb2024 with revenue growing 12% to R298mil and EBIT growing 27% to R61mil. Encouraged by the good results the valuation was increased by R50mil to R585mil.

The R585mil valuation provided by Zeder could be conservative.

• Independent valuations valued the farms+packhouse at R797mil. (The packhouse is worth R153mil capitalizing R17mil rent at 11%)
• The EBITDA/EV yield for the farms is 15.5% which seems to cheap.
•  

  	EBITDA	EV	EBITDA/EV
  Packhouse	17	153	11.1%
  Farms	67	432	15.5%
  Total	84	585	14.4%

• During the results conference call it was clear that there are multiple bidders for these assets raising the odds that offers will beat the R585mil. (Results Q&A https://youtu.be/bEqV22Pb4zo?t=1179 )

ZAAD (own 97%)

https://zaad.co.za/our-portfolio/

ZAAD is a selection of seed and agri-chemical/crop protection operations scattered over the world. These operations include

• Agricol (South Africa)- maize, sunflower, canola seeds
• BakkerBrothers (Netherlands) -owns IP, sells seeds into Middle East + North Africa
• May Seeds (Turkey)
• EA Seeds (East Africa, Zaad owns 40%)
• FarmAg (South Africa)- chemicals

EBITDA (including the proportion of EBITDA earned by associates) is split as follows

(Note: The chemicals business suffered a once-off hit as it had stocked up on Glyphosate raw materials as prices spiked. The spike was followed by a crash which made it difficult to pass on the high prices that had been paid for Glyphosate. This was a once-off.)

Using the EBITDA’s above an EV of R4 147mil is derived using industry EV/EBITDA multiples below. The choice of multiple is justified as follows

"The specific sector which Zaad operates in is generally characterised by valuations that translate into high earnings multiples, due

to their unique product offerings developed through its own research and development divisions and their widespread presence in

international markets." 

Subtracting debt of R1 037mil implies a market cap of R3 110mil. Zeder, adjust this "benchmark value" down and values Zaad at R2 342mil in their SOTP calculation. (An avarage 5.9 times EV/EBITDA multiple instead of the 7.3 industry multiple.)

Catalyst

On 28 March 2024 Zeder made the following announcement

Shareholders are advised that following the Disposal the Company has received several approaches from third parties regarding Zeder's remaining portfolio investments, namely the Pome Division and Zaad Holdings (Pty) Ltd ("Zaad") ("Approaches").

Zeder wishes to consider these Approaches in a manner which is fair to such third parties and the respective management teams of the portfolio investments. It is for this reason that Zeder has, inter alia, appointed PSG Capital and Coöperatieve Rabobank U.A. ("Rabobank") as co-advisors to consider any Zaad specific approaches and potentially embark on formal processes where appropriate.

Conclusion

Zeder is in the final stages of selling it’s remaining assets before delisting. I feel the process is nearing the end and there is a strong chance that investors could earn a 25% return over the next 6 months. 

Catalyst

Investment bankers have been hired to consider various approaches from interested parties