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Gossip from the docks : Grindrod Holdings

April 16, 2024
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Anthony Clark
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Anthony Clark

Grindrod Holdings thoughts & permutations

Given Grindrod's recent Q3 business update and the sharp recovery in the share price following the unbundling of Remgro's 174.5m shares the stock has rallied from its recent intra-day lows to the current 1032 cent level

 

Some gossip from the docks..

Grindrods Q3 business update came as no shock to me. My notes detailed that I anticipated a conclusion of the African Bank sale for R1,5bn alongside the probability of a good Q3 update. Well both parts have delivered.

Grindrod now has 215 cents per share in cash and is pretty well debt free. 

Now, some dockside snippets that I can add to the Q3 update

 

Under the Ports & Terminals review Grindrod comments.

Grindrods dry bulk terminals volumes were up 47% on the prior period. Grindrod benefited from further profit participation on 293,716 tonnes of coal cargo handled, driven by strong customer demand.

Now, it is my understanding that Grindrods profit participation share is around R340 a ton. Extrapolate that out and its R100 million or 14.3 cents per share given the 698 million shares in issue. Not a bad chunk of change to add into the profit bag for year-end results. 

 

On the logistics review. 

The locomotives deployment rate in Grindrods Rail business improved to 63% compared to the prior periods 32%.

I understand the current Transnet strike is a double-edged sword. The locomotives that Grindrod have are leased out to parts of Transnet, so the strike has hit that operational side. However, Im told you cant get a commodities tipper truck for love nor money currently as resource companies are trucking goods into operating ports such as Grindrods Maputo operations. 

That will see an increase in volumes aiding Grindrods participation share in the Maputo ports where DPI and The Mozambique Government are all in partnership (GND has 25%). In the Business Day yesterday, Tharisa as one company, stated it was hauling by truck chrome and PGMs into Maputo. With the ongoing unreliability of Transnetit would suggest those volumes are not going to go back to Transnet anytime soon.

 

Another titbit that was given to be was the possible valuation of Grindrod.

As I wrote in my note on Remgro exiting Grindrod on September 27th (enclosed) the exit of majority shareholder should open up Grindrod to far more corporate interest given, as I stated, Remgro had apparently declined several offers. 

https://drive.google.com/file/d/11q6hq4uBzswHA8BsJL6SCCmaY9mS2u-M/view?usp=share_link

There is a recent valuation precedent.

In April 2022, Mediterranean Shipping Company (MSC) paid for Bollore Africa (5.7 billion or US$6.3 billion) for the French-owned African transport and logistics business, documents on the deal have now detailed that MSC paid an EV / EBITDA multiple for Bollore of 7.2x.

Granted Bollore was a much larger asset than Grindrod with operations in 47 countries but the 7.2x valuation is a juicy thought. Extrapolate that out onto Grindrod and you could get R22.00 a share. Now the last NAV was 1231 cents so 2200 cents is a large stretch but as they say stranger things have happened at sea. I just throw this titbit out there are a back of memory thinking point.

 

One of the last major impediments within Grindrod, two of the big ones have gone, the Grindrod Bank and Remgro, there is the question of the land in Natal. That old chestnut has been rumbling on for some time but could there be some new light on the horizon? It has been indicated in the past that housing development, a Club Med property and a new Heineken plant has expressed interest in being situated on that property. 

 

Heres a thought, again for the back of mind memory, what if something were to transpire and African Bank actually agrees to fund development in the land block and then re-pays Grindrod the loan that is associated with that asset (you may recall it was taken on within Grindrod Bank on default). Could the new owner of Grindrod Bank actually become the catalyst for movement of that land and especially the loan associated with it? 

Even if you discount to land to zero the underlying prospects within Grindrod given the Transnet strife, growth in the Maputo port (from 7.2 million tons to 12 million tons) third party rail and ports PPPs all add far more lustre to Grindrod when the negative of the remaining land and other assets held for resale (like the taxi unit).

 

Ive had a buy on Grindrod since November 2020 (370-cents) again in November 2021 at 534-cents with a 750-cent target and then revised to 1150-cents. Both were attained. 

In my September 27th update note I revised that target to 1300-cents and given the permutations at play within Grindrod I remain very comfortable with that scenario.


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