Grindrod’s earnings surge on stronger commodity demand

JSE-listed logistics and financial services company Grindrod reported a 53% rise in core headline earnings to R529 million for the half-year ended June 2022, supported largely by stronger global demand for commodities like coal.

Releasing its results on Friday, the group reported a robust performance in its core operations, which include the Port and Terminals, Logistics and Grindrod Bank businesses.

It says drybulk terminal volumes for the half-year increased by 52% on the previous period to 7.5 million tonnes, while port volumes rose by 30% to 12.3 million tonnes.

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As a result of higher volumes, Port and Terminals saw a 164% jump in earnings for the half-year period.

Revenue from core operations increased by 31% to R3.1 billion, up from the R2.4 billion reported in the previous comparable period.

Is this the peak?

FNB Wealth and Investments portfolio manager Wayne McCurrie tells Moneyweb that although the interim results coming out of Grindrod are exceptional, with the slowdown in commodity markets, the company may have reached its earnings peak this year.

“Grindrod are essentially firing on all cylinders here; with all of their ports doing well, the bulk terminals are doing well and even the fuel business that they wanted to sell is doing quite well,” says McCurrie.

“But unfortunately, this might all be the peak in their earnings cycle because a lot of this is based on commodity prices and you know the commodity prices have rolled over after June [which is] after their reporting period – not dramatically – but they have started to turn down a little bit,” he adds.

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Grindrod’s share price has surged more than 130% over the last year, up from just above R5 to R11.50 at the JSE’s close on Friday.

Other key metrics

Core operations saw a 37% surge in trading profit to R1.1 billion, while net debt (which excluded Grindrod Bank) lowered by 27% to R1.6 billion this period.

Grindrod resume payment of an interim dividend at 17.2 cents, after two years of holding it back.

The logistics business performed relatively well despite facing challenges during the period such as the KwaZulu-Natal floods in April, which caused massive disruption to economic activity in the province and the rest of the country.

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The group’s coastal shipping and container depot business reported 88% growth in earnings.

It says all of its container depot facilities in Durban were impacted by the floods, “resulting in damages to the infrastructure at the carrying value of R51.4 million, which has been impaired”.

Interim asset insurance claim proceeds of R100 million will be used to replace damaged equipment and infrastructure, it adds.

Grindrod Bank

The group’s banking unit reported a 63% rise in earnings during the period, a growth the group says was “underpinned by the higher interest rate environment”.

“Grindrod Bank’s liquidity surplus at the end of June 2022 was R6 billion. This surplus liquidity is achieving good yields under the current higher interest earning environment resulting in no negative carry,” it adds.

The bank will soon stop contributing to the group’s performance, with Grindrod announcing at the end of May that it planned to sell the entity to unlisted retail banking group African Bank in a deal worth R1.5 billion.

The deal will see African Bank acquiring 100% of Grindrod Financial Holdings and 100% of the preference shares issued by Grindrod Bank.

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