Grindrod shares sink

JUNE LISTING: INITIAL R195 DIVED TO R100

Asset managers have to be better at spotting the loser before it takes the next leg down.

Grindrod Shipping is a dry-bulk carrier and liquid-bulk shipping company that was spun out of Grindrod Limited in June. The shipping business’ origins date back to 1910 when it was formed by Captain John Edward Grindrod.

Grindrod Shipping is based in Singapore. It owns and operates 34 bulk carriers and 15 product tankers.

It is focused on smaller handysize and supramax bulk carriers and smaller product tankers. The fleet is young, an average age of six years, Japanese built and fuel-efficient.

The share was listed in June on the Nasdaq, with a secondary listing on the JSE.

It traded at R195 at listing but then tanked. It currently trades at around R100 a share – a dive of more than 45%.

The rationale for being listed on the Nasdaq means the company is now on the radar of global shipping investors, who will better benchmark it against the 19 other shipping stocks also listed.

It seems that as analysts, we (and the underwriters) mispriced these assets relative to the market’s expectations.

The listing price valuation was based on independently verified estimates of the net asset value of the company’s vessels.

Management did a poor job of marketing the listing of this new entity. This was tricky, given they were in a closed period.

They were also unfortunate in that many large South African institutions became forced sellers as Grindrod Limited, the parent company, was their main focus for funds and portfolios.

After a global supply glut and lack of demand after the 2008 financial crisis, the global shipping market struggled. Added to that are stern new rules by the International Maritime Organisation that will place a strict cap on the sulphur content in marine fuel to cut carbon emissions.

The current slow pace of shipbuilding means the global fleet is growing at just 2% a year. Demand in terms of freight tonne kilometres, a standard measurement for the industry, is between 3% and 4% a year.

This bodes well for Grindrod Shipping for the medium term, as it takes two to three years for a ship to be built and come online.

Unfortunately, this does little to placate traders, shareholders and clients of the short-term loss of value.

Lee Kern is Cratos Capital assistant portfolio manager.

These opinions are the author’s and can’t be construed as financial advice.