Making the most of Transnet’s trials
Grindrod is having a bumper time in its ports and logistics niche and there’s no indication that business is slowing
One’s demise is clearly the other’s opportunity: Grindrod seems a great example of how to profit from government failure.
The logistics company, which is increasingly extending its operational tentacles across Africa, had a bumper 2022 and it looks as though the future is equally bright.
Grindrod handles freight at the Maputo port, where it holds a 24.7% investment in the Maputo Port Development Co of Mozambique. In addition, Grindrod runs dry-bulk terminals at the ports of Maputo, Richards Bay and Walvis Bay, Namibia.
The company also provides rail services in northern Mozambique, to the port of Nacala, with infrastructure being developed at the port of Pemba too. In Sierra Leone, the company railed 5.6Mt of iron ore from the Chinese-owned Tonkolili mine to Pepel port in a similar setup to that of the Oryx line between Sishen and Saldanha Bay. Tonkolili is the secondlargest iron ore mine in Africa after Sishen.
“We want to entrench ourselves in Africa,” Grindrod CEO Xolani Mbambo tells the FM. “That’s where the volumes will come from.”
Grindrod is seemingly also receiving better co-operation from other African nations than its home country. For example, as Transnet Freight Rail chokes up and struggles to move commodities and general freight to South Africa’s harbours, Grindrod railed 0.5Mt of coal through Swaziland in a profit-share scheme with junior collieries. This arrangement boosted
Grindrod’s earnings by R167.1m, according to its recent investor presentation.
“We truck the coal to Matsapha [in
Eswatini] and from there rail it to
Maputo [port],” says
Mbambo. This took a little convincing of the 91-year old Portos e Caminhos de
Ferro de Moçambique (CFM), which operates Mozambican ports and railways. Luckily for Grindrod, the company has been doing business with CFM for years: at Maputo port and on the graphite railway line in the north of the country.
“We had to prove to them there is demand [for railing from Eswatini],” he says. To sweeten the arrangement, Eswatini Railways allows CFM’s rolling stock to use the line between Matsapha and Maputo, crossing over at the Siweni border post. According to Mbambo, only the train drivers are changed at the border. “It is good to see the opening of the border,” he says.
The additional use of Eswatini’s rail network comes as the Komatipoort/Ressano Garcia border post between South Africa and Mozambique has notoriously been a choke point in logistics. According to Grindrod’s annual financial statements, the implementation of 24hour operations at the border post has released some strain on hauliers.
This, together with better efficiencies at six rehabilitated berths at the port of Maputo, saw Grindrod’s handled volumes jump 29% to 9.8Mt during 2022.
The port of Maputo, in total, has seen volume growth of 20% in 2022, to 26.7Mt. This is against Cape Town harbour’s 6.66Mt and Ngqura’s 5.9Mt during the same period, according to Transnet National Ports Authority (TNPA) data. In total, cargo through all TNPA’s ports declined from 217.5Mt in 2021 to 210.7Mt last year — a 3.1% drop, according to the authority. The volume of containers handled declined at a similar pace.
Grindrod’s African footprint (it operates in 14 countries on the continent), has also drawn the attention of one the world’s largest shipping-liner companies, AP MollerMaersk. After closing on January 1, with Maersk owning a 51% stake and Grindrod the balance, most of the landside logistics of Grindrod will be undertaken in the joint venture.
“We’ll focus on integrating assets between Maersk and Grindrod this year,” says Mbambo, who took over as CEO from Andrew Waller on January 1.
Charl de Villiers, head of equities at Ashburton and a longtime punter of the stock, tells the FM there is much upside to the Maersk deal. “That business will be significantly bigger. The [freight] throughput will increase materially and investors should be pleased over the long term.” The Maersk deal, announced in 2021, follows on Grindrod selling a plethora of nonlogistics businesses over the past couple of years and either returning the capital to shareholders or paying down debt. For instance, the company sold Grindrod Bank to African Bank for R1.6bn late last year and returned R390m as a special dividend on December 19. Noncore assets that remain on Grindrod’s books include a R319.2m private equity portfolio, property advances worth R1.1bn for real estate located on KwaZulu-Natal’s north coast and a marine fuels joint venture.
The company’s share price has gained 45% over the past 12 months against the FTSE/JSE mid-cap index’s 9.5% decline over the same period. Grindrod trades at a dividend yield of 3.3% and p:e of 7.3.
De Villiers remains optimistic about the company’s outlook: “We are positively inclined and still see upside as there is positive momentum in the rest of the business. We sat on [Grindrod’s shares] for a long time and it came through for us.”