Grindrod, Datacentrix Holdings, Arrowhead Properties, Omnia, Labat Africa
Investor sentiment is down on Grindrod, with the share having traded at near its low for the year. That’s unusual, because Grindrod is normally a popular share.
But this large group has been hit by the problems affecting most businesses — low commodity prices and drawn-out strikes — and added to that the delayed recovery in the dry bulk shipping market. It’s plain that Grindrod is struggling to navigate some tricky tides.
Under the circumstances it’s not doing badly, though that was not reflected, at least not fully, in its fairly recent full-year results (to end December 2014). This, and its earlier trading statement, is what spooked investors.
A superficial glance through results would have left the worst impression: headline earnings per share down by 9%, earnings per share by 26%.
The reason for this is the R4bn that Grindrod raised — R2,4bn through the issue of 96m new shares and R1,6bn via a BEE transaction. The new shares, through swelling issued shares by 15%, diluted results at the cents per share level.
Yet Grindrod still paid a decent dividend, up by 17%, which may irk those investors who made a full exit (at least on the trading statement).
Grindrod has become a pretty widely diversified group but most of the segmental revenue, R22,1bn, came from shipping.
This is what CE Alan Olivier says about shipping markets: “Shipping rates in the dry bulk sector remain well below profitable levels and the rates in the tanker sector were at unprofitable levels for the majority of the year, returning to profitable levels in the last quarter.
“However, the average earnings per day exceeded average spot market rates and the ship operating businesses delivered a solid performance. There has been good progress on the shipping fleet renewal programme.” It makes the point about Grindrod making the best of a bad situation.
Still, there was no doubt that some ships set sail full of cargo, knowing they were sailing at a loss. There can be few things as disheartening as that — except for meeting a pirate.
Olivier has proved a very worthy successor to Ivan Clark, the former CE and chairman, now retired. He has managed to steer Grindrod through good and bad times, and will do so again.
On the topic of leadership, the memory of late Murray Grindrod Senior, who died on May 16 at the age of 79, deserves mention. Though he was not much involved in the business in later years, he was very active when he was younger, and management will tell you that he was always a voice of reassurance and wisdom when that was needed.
He was the grandson of John Edward Grindrod, founder of the group, and spent 50 years with Grindrod, serving as chairman for 21 years. He retired in 2007. His coup came in 1986, the year Grindrod was listed on the JSE, when he bought the majority shareholding from Gencor.
Depressed commodity prices meant Grindrod did not do much on port and rail infrastructure development in the past year. The group has become one of the major private companies in sub-Saharan Africa on rail development, constructing a number of important rail links to speed up and lessen the cost of moving commodities to the ports.
At the ports Grindrod is involved in large projects, expanding the coal terminal at Richards Bay and dredging the harbour at Mozambique.
It is also involved in road development and improvement to speed up the transport of raw commodities to the coast.
Yet, though there was not much progress on this front, Grindrod did not sit idle. Two months ago it opened a new transport hub in Denver, Gauteng. The cost was around R200m — small change for Grindrod — but that followed earlier investment in the land and property work on what used to be a mine dump.
The transport hub will connect markets in Zambia, Malawi, Zimbabwe, Botswana, the DRC, Maputo, Richards Bay and Durban. The idea is for goods to be moved quickly and cheaply between these countries, placed in storage if necessary, and delivered to the point of departure. It will also help meet some of the visa and cross-border requirements.
With this going on and the low share price, Grindrod has to be a buy. Investors Monthly expects about a 30% upside, but it could be more.
Recovery might take a while, linked to commodity prices and shipping rates, but it will come. Now is a good time for investors to clamber aboard.