Our opinion on the current state of GRINDROD(GND)Grindrod (GND) is an international freight and financial services company operating across 28 countries. In mid-2018, Grindrod unbundled its loss-making shipping division, Grinship (GSH), resulting in a noticeable drop in its share price at that time. The company now focuses on its two main divisions: freight and financial services.
The freight division is bolstered by its strategic assets, including the North-South railway line from Beitbridge to Victoria Falls and port terminals at Richards Bay, Walvis Bay, and Maputo. The company has been particularly optimistic about growth in its financial services segment, which makes up around 30% of its business. Grindrod is expanding its retail banking services to target small and medium-sized enterprises (SMEs).
Despite its solid business foundation, Grindrod faces external challenges, particularly in northern Mozambique where ongoing conflicts pose a risk to its operations. Additionally, flooding in Natal earlier this year led to the suspension of five of their sites for several weeks, impacting overall performance.
In its financial results for the six months ending 30th June 2024, Grindrod reported a slight 1% decline in revenue and flat headline earnings per share (HEPS). The company highlighted strong performance at the Port of Maputo, which grew volumes handled by 18% to 6.9 million tonnes, driven by increased chrome demand. Dry bulk terminals handled 8.4 million tonnes, while Richards Bay saw a 20% increase in volumes. However, logistics constraints, particularly in container handling and transport, limited overall logistics earnings growth to just 3%.
From a technical perspective, the share recently broke out of a rising triple-bottom formation and began an upward trend. We previously recommended waiting for a confirmed break through its long-term downward trendline, which occurred on 15th July 2020 at a price of 340c. Since then, the share has surged to 1512c, achieving a gain of 344% over four years.
Despite the company's robust infrastructure and promising growth in logistics and financial services, it remains exposed to geopolitical risks, particularly in Mozambique. This was underscored on 6th November 2024, when Grindrod temporarily shut down all its rail, port, and terminal operations in Mozambique due to violence that led to the closure of the Lebombo border post. Although operations resumed on 8th November 2024 after restrictions were lifted, the incident highlighted the company’s vulnerability to unrest in the region.
Looking forward, Grindrod is well-positioned to benefit from a recovery in global trade and economic growth. However, the company’s exposure to regional instability requires caution for investors.
