Pos­si­ble voy­age to for­eign shores

Will years of talk be trans­lated into ac­tion?

Finweek English Edition - - Companies & markets - SHAUN HAR­RIS

FOR A NUM­BER OF YEARS Grindrod has been toy­ing with the idea of an off­shore list­ing. As the ship­ping and freight group has grown and posted solid earn­ings fig­ures, the case for go­ing off­shore has been stronger. Grindrod, the only ship­ping group listed on the JSE, feels its op­er­a­tions are not fully un­der­stood lo­cally.

That may be why po­ten­tial has never re­ally been re­flected in the share’s rat­ing, cur­rently on a price-to-earn­ings (p:e) ra­tio of 7,9 times. There’s no ex­act com­par­i­son on the JSE, but Im­pe­rial Hold­ings is of­ten ac­cepted as the clos­est, and it trades on a p:e of 13,7.

How­ever, un­der new CEO Alan Olivier the latest pro­posal in the off­shore list­ing saga is the most dra­matic – un­bundling Grindrod, ef­fec­tively split­ting the group into two sep­a­rate en­ti­ties, one in­ter­na­tional ship­ping and the other the SA-based op­er­a­tion, which would in­clude the land-based freight and re­lated op­er­a­tions.

Iron­i­cally, such a move would also largely undo much of the strat­egy of the past four years, as for­mer CEO Ivan Clark (now deputy chair­man) de­lib­er­ately sought to grow the land-based op­er­a­tion to try and re­move Grindrod from the of­ten volatile cycli­cal­ity of world ship­ping mar­kets.

Olivier says noth­ing is def­i­nite at this stage but the un­bundling pro­posal is clearly un­der se­ri­ous con­sid­er­a­tion. “Yes, I sup­pose it would undo ear­lier work and make the in­ter­na­tional ship­ping busi­ness more volatile. We’ve spent a lot of time talk­ing to an­a­lysts over­seas, and gen­er­ally we’re told the vast ma­jor­ity of in­vestors who want ex­po­sure to ship­ping want it through a ship­ping com­pany, not a sort of ship­ping and land­based con­glom­er­ate.”

Grindrod, he adds, would like to raise its for­eign share­holder base (only in the re­gion of 6%), have more cov­er­age from ship­ping an­a­lysts over­seas and see the share rated more in line with over­seas ship­ping peers. In terms of mar­ket cap­i­tal­i­sa­tion, Grindrod’s in­ter­na­tional ship­ping busi­ness would fit into the top half of listed for­eign ship­ping com­pa­nies.

Olivier says there are a num­ber of pos­si­ble stock ex­changes for Grindrod to list on – New York, Dubai, Sin­ga­pore – but the favoured choice would prob­a­bly be Lon­don. The mar­ket there has a bet­ter un­der­stand­ing of ship­ping and more anal­y­sis of ship­ping com­pa­nies. He feels the SA-based op­er­a­tions are large enough for a sep­a­rate list­ing and that while some in­vestors may have been at­tracted to Grindrod’s share be­cause of at­tempts to con­tain the volatil­ity of world ship­ping mar­kets “if we un­bun­dled they would have a choice”.

If Grindrod does de­cide to list over­seas this year, it’s prob­a­bly a good time. World mar­kets can be dif­fi­cult to pre­dict, but Olivier says three sig­nif­i­cant fac­tors are in place – ship­ping mar­kets are cur­rently strong, Grindrod’s fleet is grow­ing as de­mand in­creases for char­ters, and the weaker rand/US dol­lar ex­change rate helps as in­ter­na­tional ship­ping is priced in dol­lars.

For in­stance, the group is cur­rently able to char­ter out some ves­sels at about dou­ble the rate it’s pay­ing. Olivier says the cur­rent high level of ship val­ues and long-term char­ter rates “in­di­cates an ex­pec­ta­tion of con­tin­ued firm ship­ping mar­kets in the fore­see­able fu­ture”. Also en­cour­ag­ing, he says, is the high level of con­tracted in­come ex­pected from the fleet, with 74% of the fleet con­tracted out for this year, 54% for next year and 36% in 2009. This will pro­vide steady, an­nu­ity-type in­come for Grindrod over the next three years. At present lev­els the con­tracted out por­tion of the fleet will earn about US$143,3m (R1,03bn).

It looks like Grindrod will also con­tinue its ac­qui­si­tion pro­gramme. Vir­tu­ally ungeared and with strong cash flow, it has the ca­pac­ity to spend R9bn over the next three years. But on what? “That’s the ques­tion. We would like to spend the cap­i­tal, but it de­pends where the op­por­tu­ni­ties are,” Olivier says.

An off­shore list­ing, though, is likely to open up more ac­qui­si­tion op­por­tu­ni­ties for Grindrod. But it will also con­tinue to sup­port the land-based op­er­a­tions in South Africa, where growth in earn­ings (up 59% in the past fi­nan­cial year, though off a com­par­a­tively lower base) are start­ing to come through strongly.

Though small, the only part of the group that looks out of place is Grindrod Bank, pre­vi­ously called Mar­riott Cor­po­rate Prop­erty Bank.

Grindrod’s share­hold­ing dates back more than a decade, to what some in­sid­ers pri­vately call “a Dur­ban Club deal”. Last year Mar­riott as­set man­age­ment and prop­erty ser­vices were sold to Old Mu­tual. Grindrod ac­quired the

It looks like Grindrod will con­tinue its ac­qui­si­tion

pro­gramme.

re­main­ing 50% of the bank to make it a wholly owned sub­sidiary, but what does it do with it now?

Olivier will only say the ac­qui­si­tion was at­trac­tive, at a dis­count to net as­set value. The bank has been re­cap­i­talised and repo­si­tioned, with a new wealth man­age­ment di­vi­sion, but it would not be sur­pris­ing to see it sold in the next cou­ple of years.

Dra­matic off­shore list­ing plan. Alan Olivier

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