GNDE - Grindrod sets sail for LSE listing

07/12/2004 11:16:33

Grindrod sets sail for LSE listing
December 7, 2004

By Samantha Enslin

Durban - Grindrod was planning to list on the London Stock Exchange (LSE) and could list its local operations separately on the JSE Securities Exchange in order to facilitate black economic empowerment (BEE), Ivan Clark, the managing director of the shipping and logistics group, said yesterday.

But 'these listings depend on how well we do over the next three years. We will be a truly international company by 2007, if we are not already,' he said, noting that 80 percent of the business was already international.

He said listing the local operations as a separate black-empowered entity would need to be done carefully so as 'not to disturb Grindrod's chemistry but to allow black economic empowerment to come to full fruition'.

Grindrod has entered into BEE deals at the operational level, one of which is with J&J Investments.

Peter Armitage, an analyst at Nedcor Securities, said: 'A dual listing cannot harm the business. But I do not think a share price rerating will result.'

Grindrod has been riding the wave of strong international shipping markets. In the year to December, it is set to more than double earnings to between R500 million and R550 million. It has delivered consistent earnings growth since 2000, when the company reported earnings of R74 million.

Its strong showing is reflected in the share price, which has soared over 500 percent in the past 18 months. Yesterday, Grindrod dipped 30c to R39.20. The transport index fell 0.55 percent.

'Current fair value is at R45,' Armitage said. Based on earnings to December, the share price was trading at a 40 percent discount to the average industrial company, he added.

'But Grindrod has a fairly predictable business with certain elements of its operation being fixed. Operational risks are quite low.'

The outlook remains positive although rand strength is a concern.

Clark said: 'Every time the rand strengthens 10c [against the dollar], earnings dip by R10 million, taking into account the revaluation of assets.'

For the next three years, the group has conservatively forecast 15 percent growth a year, which would take earnings to R800 million, while its asset base would grow to R6 billion by 2007.

Earnings have been driven by bulk cargo-carrying operation Island View Shipping as well as product and chemical tanker line Unicorn Shipping.

But 'shipping markets are overheated', Clark said, with freight rates for cape size vessels having soared to $100 000 (R570 000) a day. The company expected a downswing and had therefore fixed vessels on long-term charters ranging from three to six years. This would limit its exposure to the upside but would protect it from the downside.

To further smooth out cyclical movements, it has earmarked R2 billion for investment in land-based businesses.

Opportunities for public-private partnerships existed in managing port terminals at Durban and Ngqura and in managing railway operations with Spoornet. Further opportunities were possible in Angola and Mozambique.

About 40 percent of the company's 20 land-based businesses are exposed to the rand, but others are benefiting from strong demand for vehicles.

Clark said: 'The rand does not worry me. It irritates me ... I rode it from R12 to the dollar to R6 but from R6 to R4 any South African company will struggle. If the rand goes to R4, we will be OK but we will lose some room to invest in land-based businesses.'

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