Durban-based freight and logistics group Grindrod, which also owns a bank, has flagged a rebound in headline profit for its half-year to end-June, boosted by a return of cargo flows including robust citrus and mineral exports.
The group also noted progress in selling unwanted assets, helping to breathe some life into shares that have struggled for direction since the beginning of 2020, and have been trading at a hefty discount to net asset value (NAV).
Core headline earnings are expected to rise more than tenfold to at least R335m in the six months to end-June as the group recovers from a tough first half of 2020 when countries across the world restricted activity in a bid to fight Covid-19.
Headline earnings is a widely watched measure of profit that strips out certain one-off items, giving a clearer picture of a company’s underlying performance. Grindrod’s core measure excludes a number of businesses on the chopping block, including its marine fuels business, private equity division and property interests.
At the end of the group's 2020 year, noncore assets made up 15%, or about R1.1bn, of the group’s NAV. Including noncore assets, Grindrod’s NAV was R10.75 at the end of December, when its shares were trading at a 50% discount of about 50%.
Port and terminals, and logistics benefited from the increase in cargo flows, high citrus and mining minerals exports, and alternative solutions to the deep-sea shipping lines, the group said. Ports and terminals made up about a fifth of core revenue in the group's year to end-December, and Logistics two-thirds.
Grindrod Bank remained conservative in lending and continued to maintain strong capital and liquidity ratios, yet its lending and core deposit books increased 9% to R8.6bn and 23% to R10.5bn respectively, from December.
Grindrod warned, however, that it was facing some headwinds, including activity in northern Mozambique grinding to a halt at Total’s gas project in April in the wake of an Islamist attack. This has necessitated R75.7m in writedowns and provisions for the period, it said.
Asset sales
Grindrod added that the market in which it wants to sell its noncore assets remained “challenging”.
During the review period, Grindrod concluded disposals of private equity assets, resulting in total proceeds of R176m, of which R163.7m was received by period end. Results for the period include writedowns and fair value losses of R301.7m. The carrying value of the private equity and property portfolio at the end of June was R983.3m.
Grindrod added it was “well advanced” in its negotiations to sell its private equity UK real estate asset, which is expected to fetch £17.4m (R357m).
Small Talk Daily’s Anthony Clark said recent developments, both at Grindrod and externally, had been sufficient to breathe some life into the group’s share recently, offsetting the lack of progress to date on the sale of other assets.
Grindrod was also benefiting from Dubai Port World’s recent offer for Imperial Logistics, which placed its 25% stake in the Port of Maputo in a positive light, Clark said. State-owned ports owner and operator Transnet also announced on Monday it was changing its tune on public-private partnerships, seeking R100bn in private investment to expand its facilities,
This should be positive for Grindrod, but more so the bulk commodity producers who have experienced constraints in moving their products, said Clark.
Clark said he still rated Grindrod as a buy, with a long-standing target of R7.50, per share, though the group also faces other challenges, including a shareholding structure where the top five shareholders own about 60% - which offers activist shareholders little room to put pressure on management to speed things up.
“The net asset value of the company, depending on what calculation you use, is anywhere between R10 and R12 per share, so there is significant upside in the company, but it has been slow to materialise to date,” said Clark.
Grindrod’s shares rose as much as 5.26% to R5.20 in Tuesday trading, having risen only 0.6% since the beginning of 2020, and having added just 1.6% over the past two years.
Update: Aug. 17, 2021
This article has been updated with additional information throughout.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.