The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
Chaps, as one of my old MD's used to say "turnover is for vanity but profit is for sanity". There were several potential buyers for Grindrod which eventually stepped out leaving TMI as the winner. With perfect hindsight I agree with you that they bought just after the shipping cycle had peaked and was clearly on the way down and clearly the Grindrod NAV has fallen quite a bit since then and interest rates have dramatically increased and vessel values reduced. I suppose the reality is that TMI could not have known just how far the shipping cycle could drop and they are steadily squeezing out cost savings which benefit the bigger group. If I remember rightly they $21 for each Grindrod share (plus $5/share from the cash in Grindrod) and today you can buy the same Grindrod share on Nasdaq for around $9/share, so that does not look good. But don't forget that nearly 17% of the Grindrod shareholders decided not to sell and are sitting on the same paper loss. Technically TMI could now buy a chunk of these shares on Nasdaq/JSE at around $9 each which is a substantial discount to NAV.
One of the big takes out of the HI TMI results was that once they get the debt ratio below 25% then they would probably stop net selling vessels (possibly buying a few newer vessels and selling a similar number of older vessels) and that they would then consider some share buy backs. The TMI discount to NAV was over 36% on 7th Dec and if the NAV for the current quarter increases as I recently suggested then even with the share price now up to about 70p , then that could represent over a 40% discount to NAV when the number is out in late January.
So it is all about timing, the takeover does not look a success but in 3....6....12 months who knows. Eagle Bulk was trading at a discount to NAV, incidentally they were one of the possible Grindrod buyers last year, but with the announced takeover by Star Bulk , the shares are now up around the NAV level.
The dividend is a little higher than expected suggesting THS has taken in some of the recent comments. Having looked as my expected figures compared to the published numbers the PGM revenue was spot on, the agency and manufactured revenue was slightly better than expected (although this makes up less than 10% of the total revenue number). My expected chrome revenue was $21 m lower than the actual, about two-thirds of this was due to sea freight costs for chrome increased about $19/t in H2. The other main area was actual Cost of Sales about $12m higher than my expectation mainly due to higher inland freight costs to get chrome from mine to port and higher Salaries and wages (in hindsight i have probably not fully allowed for the extra staff employed at Karo. Cost of commodities were $20.27m for the full year but actually $24.99m in H1??? Otherwise there were no big surprises in the numbers for me.
The big omission for me was no 2023 Mineral Resource and Mineral Reserve Statement. As I have mentioned before the Karo project was based on 3.0 grams 6E pgm's per tonne of ROM based on 2017 Zimplats numbers (3.51g/tonne indicated/inferred) but the 2022 Karo Mineral Resource and Mineral Reserve Statement has a indicated/inferred number of 2.04 g/tonne and proven/probable average of 2.63g/tonne. Unless the 2023 Statement shows this number has increased to above 3.0g/tonne, then even without the drop in PGM prices, for me this just totally kills the Karo Project .The total attributable net assets acquired in Karo was $82.2m with considerable investment since and considerable spending ongoing. If Karo is totally cancelled and this written off then that is a massive hit on the THS balance sheet. So the 2023 Karo Mineral Statement is critical and the longer we have no news the more nervous we should get.
Regarding PGM prices, like others below I too believe then will gradually improve but where I differ is that it could take longer than suggested below. Having made massive capital investments with lots of employees and commitments on government mining rights , producers will be reluctant to cut back in the short/medium term and will endure some pain hoping that prices eventually turn and that another company rather than them will cut back until they have to follow (this is the very situation we are seeing with Karo).
It was good news on the Radox One battery investment, some form of storage was always going to be necessary to store solar electricity generated in daylight/quiet periods to be used at night/busy periods.
Candidinvestor, as you say, we are broadly on the same page. It is impossible for the Company to give some form of dividend commitment for next year, we know their stated aim, but they will eventually have to follow the medium -term movement in the NAV over 3 or 4 quarters, they can take 1 or 2 bad quarters but not 3 or 4 in a row. Thank goodness for the positive momentum, the Baltic Handysize index is now up 34.99% YTD and the Baltic Supramax index up 39.36% YTD. Regarding the difference between TMIP and TMI, other than the difference in currency I honestly do not know. Since the Company floated they have has TMI in GBP and TMIP in USD. I have always thought the TMIP in GBP is to catch the smaller PI's in the UK while TMI in USD is to catch the bigger players particularly in the USA? I am interested to know myself.
Candidinvestor, thanks for your comments. On your two bad points the operating profit (aside of the massive vessel value drops) was very slightly negative so as you say there was not any cash profit either and so as I pointed out the dividend cover was negative so that the dividend was paid out of cash/vessel sales which cannot be sustained in the long-term and is only a short-term measure and I agree that any drop in dividend would hammer the share price. Fortunately things are on the turn so the BHSI and improved vessel values look like preventing this happening but I agree they are skating on thin ice. The Company appears committed to the dividend and not reducing unless they have to so unlike you I do not think they will substantially drop the dividend in the new year.(but might have had to if the BHSI/vessel values had not recovered).
On your second point , I suppose the Company does not want to loudly shout about losing $120m but likewise they are not hiding it and the NAV drop is there for everyone to see.
Nickqj, on the Tharisa website under "investors" scroll down to "weekly PGM and chrome info". This is updated most monday's for the week before. I suggest you use SA Cr203 concentrate 40-42% currently showing as USD 282.50/tonne. This is the guide price for South African chrome concentrates with 40-42% chrome content CIF main Chinese ports.
It has been announced today that Starbulk Carriers has taken over/merged with Eagle Bulk Shipping Inc at a 17% premium to Eagle's share price on Friday 8th Dec, The new Group will have a value of $2.1 billion and one 169 vessels (Newcastlemax/Capesize/Ultramax/Supramax).
Sam, still there!you lucky person! Safe flight home.
Only my view and I have been wrong , many times before , but some perspective is always good even if someone out there disagrees or has more accurate calculations.
We just need the BHSI to hold up and even better if vessel values actually increase rather than depreciate
Hi all, we were told on 25th Oct that the unaudited NAV at the end of September has dropped to $1.31/share so the loss of $120.2m announced today is totally as expected. Unfortunately we are in negative dividend territory.
But the good news as Sam points out below $119m of this loss was due to like for like vessel value reductions and the Company told us that since the end of September vessel values have returned back to their end of June levels which IF MAINTAINED to the end of Dec is roughly worth $50m. Reducing the debt further with reduce the quarterly TMI interest charge to below $3m, our interest is in USD so effectively reliant on that the Fed does in the USA rather than the BOE. Then I reckon the TC equivalent in H1 of $11,550day will be over $14,000 in the current Quarter (today the BHSI is up exactly one third since the start of the year) . Remember that each increase of $1,000/day, based on current vessel numbers, produces about $3.6 m additional profit every quarter. On this basis an if the numbers are maintained then when the Sept-Dec NAV is announced at the end of Jan 2024 the NAV should have increased by around 16 cents+/share which I think should be enough to push the share price back above 70p/share.
The anticipated EPS of 27.5c/share is about 18% down on my expectation which will now result in PAT of around $84m and total dividend of around 4.25 to 4.5c/share so the final dividend will probably be 1.25-1.50c/share. I suspect the lower profit is a result of having to buy in more 3rd party concentrates at the Tharisa mine and bigger losses at Karo. The actual result out on the 14th suggests some heart searching and delays in the last week or so.
Still big decisions needed on Karo as others have said below, the Company really needs to explain the forward path so for me it is not yet a buy on an income basis if the profit could be lower in 2024.
Yes, a good idea to get debt down when you are paying over 7% interest and your current ROI is below that. We already know from the trading update and Q2 quarterly unaudited NAV on 225th Oct that the H1 results on 11th Dec will not look pretty but the Q3 numbers should have a serious uplift which I agree is not yet reflected in the current share price. On Friday the Handysize TC was $13,908/day and the 4 route Atlantic TC a massive $19,206/day. Yesterday the BHSI increased 3.49% and is now up 20.66% YTD.
Sam,are you talking Guernsey or somewhere more exotic? Let us all know how you get on. Yes, crazy {in a good way} market conditions this week. The Cape index is up a third in 2 days! The BDI increased 10% in November, the best monthly performance since June 2020 and the BHSI up 12.26% in November.
According to TradeWinds " Supraxes in the Atlantic earning highest premium since 2017- but yet ready for the January blues".
I agree with your comments on the Company and just hope these increases are enough to fend off any reduction in the dividend. TMI H1 results out on 11th Dec.
Sam,
the Q3 revenue was actually higher than I had expected but the gross profit was lower than I had expected suggesting the depreciation or some of the costs were higher than expected.
Over the 9 month period if you assume the $5.2m adjusted loss is spread over say 29 owned/chartered vessels divided by 270 days then that is equivalent to a $664/day loss per vessel so that roughly puts the breakeven for Handysize vessels at $10,916/day and Supramax/Ultramax vessels at $14,110/day.
I still think Monday for the results, and take the company's comment at face value, so we can wait a few more days.
Sotolo, I agree the current P/E does look absurd but the year ended 2 months ago and as you have said before ,that is looking in the rear view mirror and the 2024 forward P/E is now what counts.
Hi Riverboy, now more sells but the share price is now showing as down 0.93%.
Overall, like us, the market is perceiving the Grindrod Q3 result as being a little disappointing. The Grindrod capital reduction in the form of a cash distribution has yet to be completed and the business will not pay out any more dividends for 2023.
Hi Sam, Q3 net loss was $6.5m or adjusted net loss of $5.2m so worse than my expected bottom end of $2m loss but I think this just reflects that the BHSI index in this quarter, particularly July was lower than we want to remember and interest rates have increased further
.As you say, the TCE rates are increasing. For me the Grindrod breakeven handysize only number was around $10,000/day 12 months ago and now $11,000+/day based on current interest rates/operating level/admin costs spread over less vessels.
Obviously this will reflect on the Q3 TMI number but I am still expecting a better number.
Hi Sam,
I totally agree with your sentiment and Riverboy and Krusty before, like you, I am down here and hanging on for the ride.
I have already tried to include the factors you have mentioned and just tried to be realistic , see the recent numbers for Eagle Bulk ,and hope like you that I am way too conservative and the actual numbers are much better , we will see on Tuesday or Wednesday.
I have had another look at the BHSI for July to Sept and the quarter was the lowest of the year so my expectation now for Grindrod's Q3 is Net Income/ Profit after tax of between -$2 m to +$2 m so broadly break even and no change to the NAV which might initially seem disappointing but the number should be considerably higher in Q4.