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Opportune Investments founder Chris Logan sheds light on his investment stock picks for 2022. Given the uncertain macroeconomic environment we find ourselves in, coupled with high valuations, Logan decided to go with two low-risk South African businesses. The one is PSG-controlled Zeder, an agriculture investment holding company, which is currently under cautionary announcement relating to possible disposals. The thesis behind the Zeder investment is that its share price is markedly lower than the net asset value of the business and Logan is hoping management will be able to unlock this value through corporate action. His second pick is niche real estate business, Stor-age. It’s been one of the few successful South African property companies, having successfully diversified into the UK. He says while neither investment will be a multi-bagger, he expects a safe return from both. – Justin Rowe-Roberts
Chris Logan on Zeder Investments:
I’ve gone with a low-risk pick in Zeder. I have opted for quite a low-risk play because I think there’s a high degree of uncertainty. Given the fact that markets have run hard, we are possibly faced with the rising interest rate environment, rising inflation and weak growth. Zeder should be largely immune to this. It’s about a R5bn market cap company trading at about R3,20. It has a net asset value of R4,50; within the R4,50 but there’s about R1,30 of cash or near cash. They have been under cautionary announcement since April of this year, and this relates to receiving approaches, a number of approaches, to buy their investee companies. So far, they’ve sold one of them or announced via SENS the sale of one of them, the logistics company for about R1.5bn, which is just over a rand a share.
Once all the paperwork is done, they talked about returning the proceeds from that sale to shareholders. So, just from what they are likely to receive from the logistics group and the existing cash, one could easily envisage receiving a dividend or return of capital of over R1. The good news is they are still under a cautionary announcement. It’s quite possible they could sell either Capespan or their other big play being Zaad. Then you’ll receive a substantial amount of cash back. Their only other asset is Kaap Agri, which is a very well-run specialist retailer, benefiting from a big recovery in earnings and consistent earnings growth, and it too is under the cautionary at the moment relating to acquisition. I think it’s realistic to expect that during the course of 2022, you could get back close to R4,50 or all of it. To me, that equates to a good low-risk buy in an uncertain market. It’s not going to double, but you could easily be looking at 50% up from where it is now, which is not bad.
It’s a real estate investment trust (REIT) that’s involved in storage, as the name implies. It has shown itself to be immune to economic downturns and the pandemic. They recently reported great results. There are only nine other storage REITs globally, and they are by far the cheapest of all of them. They highlight that they are trading at half the rating in terms of price to net asset value of their UK peers. They’ve got about 40% of the asset price in the UK, where they are growing spectacularly. It’s on something like an 8.6% forward yield, which is growing as their distributions grow. So, it’s what I call a low-risk buy.
At some stage, there could be a value unlock if they choose to spin out or list their UK operations, of which not much value is being currently placed on it. The management is young and started the company, so they’ve got a long runway ahead of them and it’s a specialist REIT. As I say, globally storage has consistently been the best sub-sector in the property space over the last number of decades. It’s been a wonderful place. Part of it is because these are strong operational overlays of digital marketing and it is not just a pure property play. These things tend to command a premium price to net asset value and they deliver premium growth.
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