Publications
Partners
Johannesburg - The 56% drop in shipping and freight services group Grindrod's interim headline earnings showed that the "super profits" enjoyed by the shipping company last year are over.
However, Grindrod's strong balance sheet, cash generation ability and sustained dividend cover in the face of a difficult trading environment has pleased investors, one of which called the first-half earnings "pretty decent".
Headline earnings at Grindrod dropped by 56% to 105.7c per share in the six months to end-June 2009, compared to 242.8c/share in June 2008.
Earnings at shipping - Grindrod's primary division - dropped a massive 68% from R1 039m in June 2008 to R337m in June 2009.
"The fortunes of the shipping division changed substantially in the final quarter of 2008, when shipping markets experienced their sharpest decline in history," said the group.
Shipping was hit by lower commodity prices, pared down trade volumes and general lack of credit.
Since that squeeze, the market has improved somewhat. Grindrod CEO Alan Olivier said that demand for commodities from China has acted as a catalyst for the shipping industry.
A more tentative recovery is expected from other markets.
Grindrod's other divisions are freight, trading and financial services. They make up less than a third of Grindrod's earnings, but all reported growth.
The company has a contract cover in place for its fleet, which it expects to act as a safe guard should the trading waters remain choppy.
The contract cover for the second half of 2009 is 71%, and 55% for the whole of 2010.
Interim dividend was 30c/share in the six months to end-June 2009, compared to 68c/share in 2008 interim period, reflecting the lower 56% decline in attributable profit. However, the company did maintain a 3.6 times dividend cover over the past year.
Cash generated from operations declined somewhat to R1.2bn in the six months under review, compared to R1.6bn in the previous interim period.
Grindrod is a typically highly cash generative business. One of the biggest cash outflows during the period was R801m on capital expenditure, which also resulted in a net debt position to R37m in June 2009 from a net cash position in December 2008.
'Attractive acquisition target'
Grindrod's net debt to equity ratio is at a low 0.6%.
"This company is in very good financial shape," said Vega Capital director Francois du Plessis.
Du Plessis said that Grindrod's strong balance sheet and portfolio of strategic assets could make it an attractive acquisition target for an overseas player.
"A company in this good a shape can actually become a liability for itself," he added.
The company is highly sensitive to the rand-dollar exchange rate. Grindrod operates in dollars and does not hedge against the rand's volatility.
In the results to end-June 2009, the foreign exchange loss amounted to $1.9m from a profit of $10.5m in end-June 2008.
Grindrod is still looking for an acquisition. The company is sitting with R1.47bn in cash and cash equivalents, an improvement from June 2008's R869m.
"Weak markets give the opportunity to grow, so we will be looking for acquisitions," said CEO Alan Olivier.
He did not elaborate on any particular businesses Grindrod may be eyeing. However, acquisitions will most likely seek to increase capacity in the shipping division, as well as ports and terminals.
"We could look at a few smaller operations as well but we definitely won' be buying another bank," said Grindrod financial director Tony Stewart.
Grindrod shares were trading down 0.43% at 1 621c/share on Thursday.
- Fin24.com
