Cash-flush Grindrod Shipping (Grinship), which provides maritime services mainly in the dry-bulk sector, has markedly increased its quarterly dividend payout — a confident gesture that might placate investor concerns over choppier waters in the second half of the financial year.
Despite feeling ripples from the Ukraine/Russia conflict, Grinship on Thursday reported robust interim results with its strongest second-quarter performance in over a decade as dry-bulk markets remained buoyant. Revenue for the six months to end-June was up over 50% to $272m with net profit increasing almost fourfold to $83m.
With net cash flow generated buy operations touching $138m, Grinship had about $160m in the bank at the end of June. With no share buybacks undertaken during the second quarter, Grindrod closed its first-half trading with its highest quarterly cash dividend of $0.84 a share since the quarterly distribution policy was started in the third quarter of 2021. The payout is almost three-quarters higher than the $0.47c a share paid for the first quarter to end-March.
The market was reassured, with Grinship’s share price steaming up the most in four months, nearly 16% higher at R366.28 on the JSE.
Interim CEO Stephen Griffiths said the war in Ukraine was disrupting the grain trade and other commodity flows due to the effect of Russian sanctions. But he noted shipping demand had remained more resilient due to replacement cargoes being sourced from longer distances.
Griffiths said the strong interim performance reflected the resilient markets in Grinship’s handy-size and supramax/ ultramax dry-bulk carrier segments. “The smaller segments in which we operate are still earning a premium over the larger vessels due to their versatility, benefiting from a broader base of cargoes and continued spillover from the container trade.”
He stressed that the supply picture remained at healthy levels with minimal ordering of new vessels due to concerns over environmental regulations and higher new-building prices.
But he cautioned that the second half of the financial year had seen more macroeconomic concerns emerging as the global economy battled with higher inflation and higher interest rates.
“Thus far the impact on the dry cargo market has been minimal, though we remain prudent in our approach to risk management given the potential uncertainty,” Griffiths said.
In a dry-bulk market review in Thursday’s investment presentation, Griffiths explained that the war in Ukraine had affected flows of certain dry-bulk commodities — mainly in the grain and fertiliser sectors. He said weaker economic conditions in China had also reduced steel demand, which is a key driver of global dry-bulk trade flows.
Griffiths said this was being partially offset by longer required voyages as replacement cargoes continued to be sourced from further afield. “This is demonstrated by ton-mile demand expectations that are still expected to increase by 1.2% in 2022 while actual tonnes transported are projected to be flat year-over-year.”
He said the primary examples of this trade route substitution were in the grain and coal markets. “Buyers are sourcing alternatives to Ukrainian grains and European buyers are buying alternatives to Russian coal, while Russia finds new export markets for its coal.”
Looking ahead, it appears Grindrod will still continue to benefit from firmer shipping rates in at least the short term.
The investment presentation disclosed that as of August 10 Grindrod had contracted TCE (Time Charter Equivalent) per day rates of 1,020 operating days at an average TCE of $25,127 for the third quarter. In the supramax/ultramax category the group had secured 1,524 operating days at an average TCE per day of $26,766. The comparative interim period TCE per day in 2001 was $15,285 for Grindrod’s handsize fleet and $17,606 for the supermax/ultramax vessels.
The group pointed out that every $1,000 change in the TCE/day rate equated to about $10.8m of TCE revenue during the 2021 financial year.
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