Financial Mail - Investors Monthly - - Contents - Shaun Harris

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.

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