The sudden bidding war for fruit exporter Capespan has got investors’ tongues wagging about what value or potential could be hidden in the former Bellville-based co-operative. Over preceding weeks Finweek has outlined a formal bid of 225c/share for Capespan from listed agribusiness investor
Zeder Investments [JSE:ZED] – which was promptly followed by a mystery bid (possibly major shareholder Total Produce plc) for 50m shares at 240c and other smaller bids at higher prices.
Capespan – unlike other more buxom agribusinesses in the form of
Clover Industries Limited [JSE:CLR] or KWV – has been a bit of a wallflower.
The emergence of determined suitors over the past few weeks should raise a few eyebrows and perhaps prompt questions as to whether Capespan (like KWV) may hold a treasure trove of undervalued assets. After all, “undervalued assets” (remembering KWV’s modest accounting value of its properties and art collection) is a term largely applicable to agribusinesses.
Zeder already has one hand on the prize, having accumulated almost 35% of Capespan. The bulk of Zeder’s stake was built up at prices closer to the 120c/share mark, although a chunk of shares has been collected following the buying in the over-the-counter market at 225c.
Before Zeder’s formal offer those investors delving into Capespan were really buying scrip on the basis that at levels between 110c and 150c there was an enormous discount on Capespan’s net asset value of almost 280c/share. Certainly, Capespan’s indifferent operational performances over recent years (notwithstanding some attractive dividend declarations) wouldn’t justify too much excitement about operational prospects.
Yet there are bidders prepared to pitch offers at prices fairly close to Capespan’s intrinsic NAV. Surely the aggressive bidding isn’t premised on asset values but rather Capespan’s operational potential? As we’ve pointed out before, new CEO
Johan Dique (ex Senwes) comes with a formidable reputation.
Finweek believes “potential” lies outside the core competency of fruit (although a weaker rand would help no end) and can rather be found in Capespan’s Logistical Division. Capespan’s annual report to end-December 2010 noted the Logistical Division made “excellent” progress in diversifying types of cargo and growing its third-party fruit business.
In its last financial year the Logistical Division – which comprises port terminal operations, shipping and cold storage – only generated R590m, against the R2,2bn from Capespan’s core fruit operations. Though the division’s top line was seriously curtailed when its shipping arm – Universal Reefers – was withdrawn from open market trading of conventional refrigeration vessels, logistics still managed to chip in R70m to after-tax profits against the R21m from the fruit division.
Port terminal business FPT was the star performer, with the number of fruit pallets handled increasing by 12% to 741 000.
More importantly, in terms of securing third-party business FPT’s “outside” volumes grew to around 84% of total fruit volumes. The volumes of general cargo also showed encouraging growth of more than 50% to 712 000t, while containerised volumes grew 28%.
Things look a little dismal at Universal Reefers – especially since it was announced that the tender for the United States citrus programme was unsuccessful. The swing to transporting fruit in refrigerated containers has seemingly altered prospects for this business rather drastically. However, the annual report does state Capespan is “investigating various acquisitions in the Logistical Division for further diversification”.
Investors will no doubt be keenly anticipating Capespan’s interim results to end-June to gauge the progress of its Logistical Division. Investors may well have noticed the division was grinding along turgidly in the first half of the year to year-end December before pulling off an amazing comeback over the second half. If the momentum from its second half comeback is still there then the interim performance from the Logistical Division to end-June this year should look fairly steamy. Investors may want to check out the interim performance of the six months to end-June 2009 (when earnings came in at around 17c/share) when mulling possible “normalised” bottom line figures. And there have also been some cost-cutting initiatives that could reinforce net margins, which should partly offset the rand’s dalliance at stronger levels.
Indeed, a powerful performance from the Logistical Division – and let’s also not write off the chance of inspired acquisitions – might well explain the current willingness by (what appears to be) various parties in bidding up Capespan with such vigour.