JOHANNESBURG – The two Grindrod companies last week reported separate earnings for the first time since the implementation of the shipping spin-off earlier this year.
Old Grindrod shareholders now hold two different shares, of which Shipping is also listed on the Nasdaq and is an entirely US dollar-based share, with a specific focus on international trade. The shipping market and its outlook remain positive, and the new board is in the process of agreeing and executing their strategy.
The old freight and financial services part of Grindrod is now stand-alone, and used to be about a quarter of the revenue of the combined group.
It is segmented into four divisions: logistics, contributing 35 percent of profits, financial services 28 percent, port and terminals 25 percent, and marine fuel and agricultural logistics contributing 12 percent.
The combined group reported a loss in the first half of 2017. Now, after the separation, only Grindrod Shipping is in negative earnings territory. Its revenue declined by 22 percent, while Grindrod Freight and Financial Services managed to grow revenue by 4.6 percent.
Financial Services
The business continues to grow despite the muted local economy and the Sassa payments that are being made by the Post Office since July. The future of any profits from this source is uncertain. Grindrod Bank earned 50c per account under the grant payment system, and millions of grant beneficiaries automatically became their clients.
Of course, there are more banking fees, etcetera, earned. If these welfare customers decide to open a permanent bank account, the bank can still do business with them. Grindrod will naturally try to retain as many as possible of the 5.4 million bank accounts it got under the grant payment system.
Luckily, Grindrod also has other prospects; it is one of the four preferred bidders for Portuguese-owned Mercantile Bank. If successful, it would have R13 billion more in assets under management. Mercantile is very complementary to Grindrod and can provide the scale it so desperately needs. If Grindrod cannot retain any welfare clients in some form, its profits are likely to decline by around 20 percent.
Port and Terminals
Maputo Port expansion is going well, and capacity is increased through continuous improvements, in line with demand. Total port volumes, at 9.7 million tons, grew 15 percent from the previous year. Some 477 employees are employed and over 7 000 hours of training has been done this year.
Planned capital expenditure includes slab development and the purchase of handling equipment, which is expected to further improve volumes and port efficiencies for shipping lines. Matola terminal coal volumes increased by 36 percent.
The Richards Bay Terminals volumes were 1.7 million tons, up 7 percent on 2017. In Namibia, the Walvis Bay Terminal experienced increased export activities, with new exporters boosting the volumes. The construction of tank capacity in Cape Town is progressing according to plan, and completion is expected in the first half of 2019.
Buoyant demand for chrome and ferrochrome is expected to deliver volume growth, and improved export growth in coal is expected to drive volume uplift at the Richards Bay terminal.
The net asset value per share is 1 257 cents, and Grindrod has no debt. The share is currently trading at a price to earnings multiple of 10.
Amelia Morgenrood is a Member of the South African Institute of Stockbrokers. Portfolio Manager Regional Director Faerie Glen Stockbroking & Financial Planning.
Views expressed here are not necessarily those of Independent Media.