Grindrod will not be unfamiliar to IM readers.
IM has named it Pick of the Month several times: in November 2020, at 370c, in July 2021 at 494c and in April 2023 at 946c. These recommendations were predicated on a cleaning up of the spider’s web of interests that Grindrod had accumulated over the years. This was successfully undertaken by former CEO Andrew Waller.
Grindrod, aside from its rail, ports and transport logistics core, had diversified into banking, private equity, land ownership, agricultural interests and myriad unrelated assets. This muddied the waters and trapped value within the counter.
Over the past few years, most nontransport assets have been sold and debt levels have fallen to 4%, leaving Grindrod in a healthy position for expansion into participating in the public-private partnerships (PPPs) announced by the government, which has opened up the ports and rail sector for private investment and access.
Grindrod has experience and expertise in both sectors. The company operates successful wharfage and container depots in Durban and has a highly profitable 24.7% interest in the Port of Maputo in Mozambique, whose well-run operation has drawn increasing export traffic away from South African ports, which have slumped in the global efficiency rankings.
For several years, as Grindrod slimmed down to its core activities within logistics and transport, the market rewarded the progress with a 152% gain in the share price over three years and 195% over five years.
Much of the peripheral noncore assets have been sold, with only marine bunker fuels business Cockett Marine as the outlier. The recent sale of real estate in Durban for R500m was below book-holding cost but the market was satisfied as the exit was swift; selling the land piecemeal would have taken years.
Grindrod was riding high in 2024 as enthusiasm over the PPPs, especially the rail opportunities and the links between South African and Mozambican ports, spurred earnings growth hopes.
Grindrod’s operations in Mozambique suffered only limited disruption but the media coverage of the political instability weighed on the company
The share price skidded in early October 2024 as political violence erupted in Mozambique over election results. The Lebombo border was closed temporarily and transport disrupted. This was short-lived, but the sentiment impact on Grindrod was severe. The share price slumped 25% in late October into November, bottoming at R11.52 in late December with the p:e slipping to 7.5.
Grindrod’s operations in Mozambique suffered only limited disruption but the media coverage of the political instability weighed on the company. Despite the violence, the Port of Maputo, a 50/50 joint venture between Grindrod and DP World in which the Mozambican government has a 50% stake, reported pleasing volumes for 2024.
Volumes year on year dipped a modest 1% to 30.9Mt, primarily due to the protests, highway blockades and the border closure.
Encouragingly, rail volumes rose 7% to 3Mt in the year and road volumes 11% to 10.7Mt. Direct volumes were up 14% to 14.2Mt.
Year to date, the Grindrod share price has recovered its poise as the situation in Mozambique has moderated and the market focuses on actual performance rather than what-ifs. IM remains cautious, because political discontent is still rumbling.
However, there are many positives for Grindrod. Transport minister Barbara Creecy’s announcement on the rail initiative on December 20 2024 has galvanised private enterprise, which is steaming ahead.
Portos e Caminhos de Ferro de Moçambique, the national rail agency, has upgraded volumes on the key Maputo-Ressano Garcia corridor, which will double capacity to 24Mt. Further, the open-border agreement for rail transfer between South Africa and the Port of Maputo has had successful trials, with intermodal access aiding efficiency.
IM had a standing price target of R16 for Grindrod, which it attained in July 2024. It then slumped in late 2024. IM continues to see significant potential in Grindrod and believes management will shed light on the prospects and capital expenditure aspects of the rail PPPs and the rail corridors at the full-year results presentation on March 7.
Grindrod is the only direct JSE counter with assets and potential in the rail and ports sector, so IM sees recent weakness as an opportunity for a second bite at the cherry. IM maintains its R16 target.
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