Clean­ing up and un­lock­ing value

Financial Mail - Investors Monthly - - Analysis - An­thony Clark

An il­lus­tri­ous name in shipping and lo­gis­tics in SA has had a mo­men­tous cou­ple of years, and IM sees the po­ten­tial for ma­te­rial value up­lift in Grindrod Ltd as as­set sales un­lock the cur­rent NAV of R11.75 a share com­pared to the share price of 447c at the time of writ­ing.

Grindrod has been a fea­ture of the SA shipping scene since 1910 and has di­ver­si­fied and ex­panded into ports, trans­port and lo­gis­tics.

A few years ago there was in­vestor dis­quiet that the ma­te­rial val­u­a­tion trap within the greater Grindrod com­pany un­der­val­ued the busi­ness and added to its volatil­ity. The shipping side was highly cycli­cal.

In 2018, Grindrod un­bun­dled the shipping in­ter­ests with a separate list­ing on the JSE and Nas­daq. The val­u­a­tion of Grindrod Shipping in June 2018 was a meaty $320m, with the share price hit­ting near $18. To­day, the shipping as­sets are val­ued by the mar­ket at $74m and trade at a share price of $3.88.

The “rump” as­sets held in JSE-listed Grindrod Ltd have hardly had a stellar per­for­mance, with the share price de­clin­ing 47% over the past 12 months. But they have per­formed bet­ter than the shipping unit.

What has changed over the past 12 months is the val­u­a­tion mind­set to­wards Grindrod Ltd, with man­age­ment now charged, en­cour­aged by 23.3% share­holder Rem­brandt, to un­lock and re­lease value.

Results for the year ended De­cem­ber 2019 saw a 12% rise in rev­enue to R3.9bn. Head­line earn­ings from con­tin­u­ing op­er­a­tions rose 9% to R525m, with earn­ings mov­ing from a R20m loss in 2018 to a R300m profit in 2019.

The key rea­son for this was sig­nif­i­cant up­lift in vol­umes and prof­its at the port as­sets, where profit rose 121% to R308m, and the lo­gis­tics as­sets saw prof­its rise year on year from R50m to R174m.

Head­line EPS rose 21% to 77.2c, with to­tal div­i­dends for the year of 19.2c a share.

But the main premise of this com­pany re­view is the po­ten­tial of cor­po­rate break-up and as­set un­lock. On man­age­ment’s NAV val­u­a­tion, Grindrod is trad­ing at a dis­count of 62% to the stated NAV of R11.75 a share. Grindrod has stated that its non­core as­sets are agri­cul­ture, marine fu­els and the pri­vate eq­uity as­sets.

The 20% stake in North West grain co-op NWK was sold for R204m. A sim­i­lar 20% stake in grain ti­tan Sen­wes is also slated for a sale.

The marine fu­els busi­ness Cock­ett Marine Oil is one of the world’s largest value-added re­sellers of marine and pe­tro­leum prod­ucts and ser­vices. De­spite mixed results, a val­u­a­tion of R600m for Cock­ett is touted.

Pri­vate eq­uity may take longer to sell but has been “cleaned up” and could fetch R500m.

Mar­ket talk also sug­gests that Grindrod Bank, po­ten­tially worth R800m, may be sold.

Pos­si­bly even the crown jewel could be sold — the 25% stake in the Maputo Port De­vel­op­ment Co. That could be worth north of R4bn, with the re­main­ing lo­gis­tics as­sets worth R1.5bn.

Strip­ping out the debt and pref­er­ence shares, the R4bn mar­ket val­u­a­tion for Grindrod clearly has up­side should the as­set sales gather mo­men­tum.

IM has the feel­ing that ex­tract­ing value from Grindrod will oc­cur, but not as quickly as some share­hold­ers may want.

That may re­sult in a drag on the share price un­til some cat­a­lyst is seen from a ma­te­rial as­set sale, and 2020 should see some move­ment in that di­rec­tion. At 447c we place a buy on Grindrod as a spe­cial sit­u­a­tion play. ●

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.