Zeder: a value unlock, but how much?

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Zeder: a value unlock, but how much?

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Published Date: 2021-10-07 | Source: INCE|Community | Author: The Finance Ghost

Zeder: a value unlock, but how much?

Zeder is an investment holding company that I frequently use as an excellent example of why investors must tread carefully with corporate disclosures. The company website discloses a sum-of-the-parts (SOTP) valuation, in which the directors give a view on what the underlying assets are worth.

That's fine, but last time I looked, there was a footnote confirming that deferred tax hadn't been included as a liability against any of the assets. If Zeder sold everything and packed up shop, it would need to pay Capital Gains Tax (CGT) to SARS. That isn't referenced anywhere in the valuation and also isn't in the latest results for the six months to August 2021, which Zeder released yesterday.

As I always try to give a balanced view, I must point out that it's possible that offers for assets could be higher than the company's valuation. Valuations by directors are often conservative, although there's always a chance that any offers could be lower as well!

My point is that it's not straightforward to compare the share price to the directors' value per share and conclude on the quantum of the opportunity. A lack of disclosure around CGT and deferred tax doesn't make it any easier.

This is especially important when the company is clearly driving a "value unlock" narrative with wording like "third party approaches have been received for various portfolio investments" which suggests potential piecemeal disposals of the portfolio.

That narrative has come to the fore after major disposals of investments in Pioneer Foods and Quantum Foods, as well as declaration of special dividends. This has significantly reduced the size of the group, which has driven a process to evaluate the future strategy.

With a SOTP per share of R4.45 (up 19.3% in the past year) vs. a share price of R3.27, there's a value unlock available on paper. Some of it belongs to SARS; I just wish we knew how much.

The company is holding on to cash for now, with no interim dividend declared. My view is that this isn't compatible with a value unlock strategy focusing on returning value to shareholders.





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