Seeking Alpha Podcast “Midsize Bulkers Running Hot: Insights From Grindrod Shipping”

Summary
  • Value Investor’s Edge Live continues with this latest episode focused on the small and mid-sized dry bulk segments.
  • Grindrod Shipping is heavily focused on this market niche and has been a key beneficiary of recent rate surges.
  • CEO Martyn Wade and CFO Stephen Griffiths joined us to chat about these markets and their capital allocation plans for 2021.
  • GRIN is a lesser-followed name, but these insights also are relevant for investors in all dry bulk companies.
  • The full interview recording and transcript are included below.
  • This idea was discussed in more depth with members of my private investing community, Value Investor’s Edge. Learn More »

Listen here: Marketplace Roundtable
Value Investor’s Edge Live #33: Midsize Bulkers Running Hot: Insights From Grindrod Shipping

CEO Martyn Wade and CFO Stephen Griffiths of Grindrod Shipping (GRIN), a dry bulk shipping company focused on the small and mid-sized segments, joined J Mintzmyer’s Value Investor’s Edge Live on 4 March 2021 to discuss the rapidly improving market outlook and company specific plans.

GRIN is significantly benefiting from surging rates and should see a very strong first half of 2021 with hopeful follow-through in subsequent reporting periods. Dry bulk overall has been in a broad bear market since 2011 and there are many signs of green shoots as worldwide demand improves while the supply via new orders remains near record lows.

Although GRIN is a smaller company, this interview contains relevant insights for investors in all other dry bulk companies, including: Diana Shipping (DSX), Eagle Bulk (EGLE), Genco Shipping (GNK), Golden Ocean (GOGL), Navios Partners (NMM), Safe Bulkers (SB), and Star Bulk Carriers (SBLK).

Topics Covered
  • (<:1:20) Introductions
  • (1:20) What is your core focus in the market now?
  • (4:15) What factors are driving rates in the smaller and midsized rates?
  • (9:30) Any environmental regulation impacts incoming to this sector?
  • (12:40) Future fleet profile? Potential to divest older tonnage?
  • (13:30) Any interest or potential in dual-fuel or alternative fuels?
  • (16:10) Market exposure in commercial pools, spot vs. time-charter?
  • (20:00) JV structure has been simplified, updates on IVS venture?
  • (23:30) What is the primary focus for capital allocation in 2021?
  • (25:15) Any plans for a dividend? Repurchases?
  • (27:30) Plans to switch to quarterly reporting?
  • (30:00) Why focus on Grindrod versus peer dry bulk companies?
Improving Small and Midsize Bulker Rates

Midsize rates are on a recent tear. Reference the YTD rates below, which are now even stronger than when this interview was conducted:

Source: VesselsValue, Handysize & Supramax rates, highlights added

Grindrod Fleet Profile

Grindrod Shipping has an updated presentation (posted 25 February), which I recommend reviewing for more company details. Their core drybulk fleet is shown below, roughly split 50/50 between Handysize bulker assets and Supramax/Ultramax vessels. As mentioned in the interview, about two thirds of this fleet is considered modern/eco and the older pre-2013 vessels (7x) are considered potential divestment candidates if vessel valuations appreciate into strong market conditions.

Source: Grindrod Shipping, February 2021 Presentation, Slide 24

GRIN also has a handful of legacy product tankers, but all of these have been earmarked for eventual sale.

Source: Grindrod Shipping, February 2021 Presentation, Slide 25

Full Transcript:

J Mintzmyer: Good morning, everyone. Good afternoon, if you’re joining us from Europe. We’re hosting another iteration of Value Investor’s Edge Live. Today we’re hosting Grindrod Shipping, stock symbol GRIN and their CEO, Martyn Wade, and CFO, Stephen Griffiths. Grindrod specializes in the small-to-medium size drybulk segment. They had an IPO around two years ago. And initially they had a mixed fleet of product tankers and drybulk, but now they’ve simplified a lot more and focus more specifically on that small and medium sized drybulk market. With the small and midsize market prospects rapidly improving, it’s time to follow up with Grindrod and see if they can share with us some insights on this key segment of the market. They’ve also had a lot of corporate changes, a lot of simplification, and we’ll talk through that a little bit. So, with that said, welcome Martyn and welcome Stephen. Thanks for joining us.

Martyn Wade: Thanks very much. My pleasure.

Stephen Griffiths: Pleasure, J.

JM: Absolutely. Just before we get into the formal questions, reminder that nothing on the call today constitutes investment advice in any form or fashion, or official company guidance from Grindrod. I have no current stock position in Grindrod. Keep in mind we’re recording on the morning of 4, March 2021 about 8:00 a.m. So, if you listen to this recording at a later date, please make sure you look up the latest disclosures.

So again, welcome. As I said in the intro, you know, Grindrod had that mixed fleet of bulkers and tankers, but you’ve clearly been divesting a lot of tankers, I think you only have four left. Is that correct? And what is your core focus going forward? Is it indeed those small and midsize bulkers or is a little bit more broad?

MW: Thanks J. They are very much so the handy and Supramax, Ultramax bulkers. Yes, you correctly said, we’ve got four tankers left. One, which is on a long-term charter in New Zealand under the New Zealand flag, which constitutes an investment these days. It’s a charter we’ve had with the previous ship now for 15 odd years. Of our other three tankers, two MRs…. they are on the market for sale and being actively worked as we talk.

So, we will be exiting the tanker space. By the look of it, hopefully, in the next well, probably Q2, maybe into Q3 and that we very much want to concentrate on the dry side. The original premise for tankers was always, you’d buy the ships, put them on long-term charter, we had specific plants in South Africa. 10 years, you pay them off, make a nice profit and then you can sell them on the market. That model is obviously disappeared with the advent of the three major traders and all companies using their old existing ships.

So, say we’re getting out of tankers concentrate on the hand is and supers ultras, and we’ve been an operator of cargo for 45 years. We still have some of our original contracts on an evergreen basis, which means they get renewed every year, which forms the core base. And from that we’ve developed into full-on first through chartering long-term ships from the Japanese with purchase options and then into actually ordering our own fleet from Japan. So, that’s where our specialty is that the core business, a lot of it is in the Indian Ocean where say, we’ve been 45 years.

And as for going into other sizes, let’s, I’ve always been a believer that, you know let’s you don’t want to be a jack of all trades, master of none. Let’s stick to where we know, what we understand where to a degree we have a major position in that market and we understand it.

JM: I’m glad to hear you say that you’re specializing and you’re focusing. I’ve watched Grindrod from a distance since your initial public offering and with the mixed fleet there were some interesting times, I think maybe last summer was a little bit more exciting with that little tanker floating storage trade we had. It was a bright flash in the pan, if you will. But I do like the fact that you’re focusing a little bit more, and particularly, again, we’re recording in early March here, one of the reasons I wanted to bring you on and talk to you today is the small bulker rates are surging, and the Supramax rates are surging.

And, you know, you have Supramax rates that are higher than Panamax rates. I’ve seen them higher than Capes because I know there’s a lot of seasonality. But I don’t think I’ve ever seen Handymax rates stronger than Panamax rates, so that’s quite interesting. Can you talk a little bit about what’s driving that market? What factors are there? And is this a short-term phenomenon or is this a longer-term change in the market?

MW: Well it’s usually with shipping, I’ve been in business 43 years, and you can never quite predict the future. Last year was looking rather good until January came along in the pandemic, but I think that this time around things are different. First off, we have a very low order book going forward for the first time in a very long time, which is fantastic, and over 10 years now. And then if you look at what happened in the world, world basically stopped in Q2 last year, everyone in lockdown, no trade going on.

We then took the view at that point that the world has to recover. And we were actually quite active at the time in taking ships on period charter for one-year from our Japanese friends. And then you overlay that with the massive biblical as they were calling it floods in China, where there were serious questions raised about Three Gorges Dam, whether it would actually survive, the water got so high and so strong, which basically wiped out the Chinese grain crops. And at that point, we suddenly saw in the market starting in July, they were making massive purchases of us grain.

Now a lot of people said, it was all under the trade agreement with Trump, etcetera. Nothing to do with that, but the volume they were buying at was rivaling the Russians after Chernobyl, and it got bigger and bigger. So that was all very positive. So, we knew that from the hand is up to the Kamsarmax is, this would be very good. And then when they got into this trade dispute with the Chinese and Australia, refusing to take the Australian coal, we can’t afford, now that really is interesting because China needs the coal. This winter, there’s been La Nina, as opposed to El Nino, and La Nina always brings brutally cold winters in the Northern Hemisphere, which again, you had in the states a little while ago, has been through Europe, but in particular China, and Korea and it’s left these countries short on energy, not enough LNG, so it resorts to coal.

Now, with China not buying from Australia, they were buying from everywhere else, yes, Indonesia, but Indonesia couldn’t make up that shortfall. So, they’ve been buying from America, Colombia, the Black Sea, so serious ton sea miles. At the same time, Australian coal, of course, became the cheapest in the world because the Chinese didn’t want it. So the Australians have developed new markets, predominantly India. So that’s further tons sea miles and of course, South Africa normally supplies coal to India. So, they’ve been forced to sell their coal to China, further increasing the ton sea miles. And of course now with the cold winter that Australia is for the first time in a long time is also exporting coal to Europe.

So the whole thing is kind of almost built into this not perfect storm, but a very interesting storm. And then you add in the problems with all the crew changes, the inefficiencies with trips with, so you go to Australia, you can’t have any crewmen on board longer than 10 months, 11 months, you have to change. So only certain ships can, and then with other ships and a two-week quarantine going into China, and you’ve had some massive inefficiencies built into the market, which has actually exposed that supply demand balance finally, is a lot closer than people think. And the order book is just diminishing and January was the lowest deliveries I think for 10 years.

So, it’s a lot of positive news in shipping. And countries, especially in the West, you got to pay people 1,200 or 1,400 bucks a month to sit on a sofa or you got to get involved with infrastructure and that seems to be very much. China started it very early, Europe seems to be the same and Biden talking about it, which would be fantastic, but you actually look at how much steel is suddenly going from Asia into America in Ultramax, our sizes, serious long haul business 60, 70 day voyages. There seems to be something afoot at the moment, which is all building into very, very positive rates and yeah, I mean we go from earning 16,000, 17,000 Ultras earning well into 20,000, 25,000 wherever they want to go. I mean it is staggering how tight it is, and how much business is out there. So, exciting times.

JM: Yeah, well, you know, I’ve been following drybulk for 12 years, and there haven’t been a lot of exciting times in drybulk in the last 12 years. I mean the 2010s were a lost, dead, miserable decade, if you will. So it’s good to see that we’re sort of turning that corner. Hopefully, there’s more legs to it. As you mentioned, 2020 was looking pretty good in most of the segments until COVID hit. So, hopefully this is a – we’re resuming that cycle. You know, the supply is as you mentioned, very low, demand is picking back up. What about environmental regulations? I know, that’s mostly a focus on some of the larger classes, the Capesizes, Newcastlemaxes and such, but what sort of environmental regulation challenges do you have? I know there’s some talk about carbon emission caps and such in 2023, does that apply to your Handysize or midsize segments at all?

MW: Well, we’ve always been advocates always, you know, deliberately had a very modern Japanese built fleet. So, eco ticking all the green boxes that more regulation is required. We’ve always been a very dirty business and the ability to trade ships, yes, slightly different these days, in the old days to 25 years, 30 years. But that is now changing. And if you look at the reason that CO2 emissions have dropped by 40% odd since 2008, of course, it’s been slow steaming, but that’s been forced upon owners by the market. Because when things got bad, everyone slows down.

Now, what shipping the industry has to do is maintain those slower speeds. So, when you look at 2023, with the energy index coming out, and the initial, I was reading something this afternoon, suggesting that any ship built before 2013 i.e. non-eco and now that’s 2013 was the first generation, basically has a problem and they’re going to have to slow down incredibly, or retrofit, which you can’t really do. So, this regulation feeding in and that goes to the order book going forward. What on earth do you order? I mean, it’s all still heavy fuel, all burning engines, it might be low sulfur, it’s still heavy fuel. The same as it has been for decades. And you’ve got to be a brave man to go and order in the eastern for a review with a ship that you want for 20 years, and it could well be made redundant in 10.

So yes, there are some attractive deals out there, but I don’t think anyone can afford to go near it because of the lack of finance, and the way this green lobby, which is fantastic, is being taken seriously and ESG absolute top of our criteria these days, you really got to be looking forward, all our banks are asking. And of course with the fleet we’ve got where one over two-thirds of it is, is built 2014 onwards. We like to think, we’re pretty well priced for that and all the older ones, we’ve one 14-year old ship, all the rest are built 2010, 2011, 2012, predominantly Japan, and we would have to look at that. But again, you’re going into a firm market now secondhand prices are rising, could be 15% 20% up in Q1, Q2 this year, it will give us the option of maybe setting out those older ships. And we can come to the joint venture later reinvesting in more modern ships.

JM: Yeah, it sounds like from your perspective, at least with, you know, two-thirds of your fleet being eco or at least more modern, the environmental challenges, if anything could be a tailwind, could be a positive, which is, you know, that’s not the same for all ship owners. I have a slide that I’ve been looking at of your fleet and I’ll make sure I post it later with the recording, but it breaks down the ships by age and such, it looks like you have about seven ships in the Handysize pool that are built between 2007 and 2012, so perhaps those might be divestment candidates in the futures. Is that correct?

MW: That’s correct. Yes. And so we’ve, yeah, we’ve – the average age of the feet is six years, but we do have those six, seven older ships, you know, which we will look to divest, but, you know, with current regulations, of course, we can trade them. And when you have 14-year old ships earning $16,000, $17,000 a day at some, yes, we will look to sell them as the marketing increases and what we have to do, but they’re quite nice cash counts at the moment, after an awful long wait.

JM: Yeah, seems like there’s not as much of a difference now in the current rates, but perhaps IMO 2030 or going forward, there could be a difference. In some of the larger segments, we’re looking at LNG fueled dual fuel ships, but it seems like in the smaller vessels, the cost to either retrofit or install such an engine or even with a newbuild would be astronomical. So, I don’t know if that’s something that’s been considered yet for something like a Supramax or an Ultramax? I know we’ve seen the Newcastles [with dual fuel], has there been any talk about alternative fuels for the midsize and smaller vessels yet or is it mostly just emission standards?

MW: Alternative fuels (make less sense) on the small ones because of course the smaller ones are the minor bulks. So, we’re tramping all over the world, multiple ports and countries. It makes sense on the bigger Capes because of course you’re basically trading between China, Western Australia-China, invariably passing Singapore.

So, you’ll always be able to get your LNG there. But for a bulker, you know, if we’re trading Indian Ocean and South America and South Africa, you’ve got to have freely available fuel. So, I think that’s a long way to go. I heard you know, I was on a panel the other day and they were talking about exploring ammonia, which is quite an exciting fuel, albeit than that anywhere near the crew, you’ll kill them.

So, there’s certain issues there. But then you wonder is it going to be hydrogen, The Holy Grail, and you know, I haven’t been to Japan now sadly, for now over 12 months. The last time I was there, we used to go regular, they will reckoning that hydrogen might be 15 years away, excuse me. Now talk about maybe less than 10. So, and I think as an owner, what we’re going to have to do is, because remember, the last 10 years have been disaster. The owners don’t really have cash.

Is that you play watch and wait attitude whereby you don’t want to be the first owner into anything new, especially in our segment, because you might be a trailblazer, or there’s a really good chance you might be wrong. So, let’s see – picture it and wait and see. And a decent market will then afford yards, the chances to maybe explore new designs, new propulsion types, and as owners, maybe we’ll have the cash to invest in it as well. So, it’s a bit of a chicken and egg here.

JM: Yeah, it certainly makes sense. You know, hopefully, you’ll have the earnings and cash flow upfront, which will enable you to finance those things if they’re required. You know, hydrogen has been, “10 years to 15 years” away since like, 2001. So, hopefully we’re getting a little closer, but you know, it’s always been “just around the next corner.” And it seems like we’re still kind of there in terms of shipping fuels, probably a bit closer, but still quite far away.

Let’s pivot a little bit and talk about your commercial operations. So, you have basically two different classes, you have the Handysize vessels, the smaller bulkers and you have the medium size, the Supramax and Ultramaxes, those are both in pools, commercial pools. Can you talk a little bit about that is, are those basically all spot or is there any sort of charter coverage on those?

MW: Yeah, J we run the two pools. On the hand is, we actually have outside owners from Japan. We got three or four at the moment, we put their ships with us, and that is a pure spot pull, very little cargo coverage, purely because the last few years the cargo coverage contracts on offer have been, you know, sub breakeven, you’ve had sub-OPEC, some of them it’s a shocker. So, we deliberately took the decision not to take any long-term contracts rather rely on the market. We do outperform, it’s been tough. But now we’re going into this market now with our hand is with basically no cover. And it’s fantastic because it goes every fixture, [indiscernible] getting whatever the market rate on the day is.

Super Ultramax operation is slightly different because of having moved from a full cargo operator in South Africa. So, with our parcel services, they’re running to the continent Mediterranean times to the [Stanza State]. We’ve always had legacy cargo so we’ve developed that and then we have other areas we have big contracts into Madagascar with Japanese friends and Korean friends. And we also do a lot of the [cold], do all the cold into Mauritius Reunion, just about. So that is our backyard and that is very much Supramax Ultramax.

So, what we tend to do is, we operate around that. So, in the bad times, we’ve always been able to keep a potential of our ships away from the market trading in own business. Now is the times to get better. A lot of our contracts are index-linked so they’re linked to the market. So, the market goes up, the freight rates go up and we then operate around them positioning them, arbitraging do we use our own ships, other people’s ships.

So on that segment, we probably got some of the reason of saving brokerage 25%, 30% cover. So, still very, very long to the market. But you know, when you’ve had relationships contracts 40, 45 years, you just don’t walk away. And the nature of our contracts, it tends to be high value commodities with absolutely blue chip names and commodities that get shipped irrespective of what’s going on in the world.

So, even in Q2 last year, you still had certain commodities is running because you get these massive plants and they can’t just stop the plant, if you switch a specialized steel plant or nickel ore plant off, you very good to reopen it. So, we’ve always targeted high quality people who will pay a small premium for the right counterparty. So, we’ve always been that. We haven’t been kind of boots on all, let’s go and book everything and give it a go. We’ve always been aiming for trades where the barriers to entry that little bit higher.

JM: Yeah, I think that’s helpful because as investors or speculators, you know, we look at the market, and we see the spot rates, and we see the last few months of rates. And, you know, we kind of want to be able to know, you know, what sort of exposure Grindrod has, and it sounds like, you know, the spot rate, the current spot rate is a very good indicator for the handysize market, and as well for the midsize, but I think you mentioned about 30%, of kind of rolling charter cover and maybe closer to 70% spot.

So, it sounds like on either side, you have a lot of exposure to the spot rates. But just important to know that, you know, especially when you’re in investor is picking right between different drybulk companies, knowing which ones actually have the spot exposure can be can be helpful? I know, there’s been times when, you know, you see the rate surging, and then the quarterly result comes out. And, you know, there’s really no benefit. So, hopefully, that won’t be the case.

Let’s pivot a little bit to some financial and capital allocation questions and hopefully give Steve some chance to talk a little bit here. There’s been a lot of joint venture changes at Grindrod. I remember right when you IPO-ed, there was, I think it was like four or five different [indiscernible] but that has simplified. So, can we talk a little bit about those initiatives?

SG: Yes J. Steve here. Yeah, I’ll take that. So, just a bit of background. Yeah. Since the listing in June 2018, one of our main strategic initiatives has been to eliminate the 19 vessels housed in off balance sheet joint ventures. So, the increase in our shareholding of [RV is bound] to 67% in February, gave us control of the JV and the ability to consolidate the results of the JV, as opposed to previously we accounted for them under equity accounting method. So, as a reminder, this JV is the one that owns 12 Japanese, both eco vessels, six of which are handysize bulk carriers, and six of which are Supramax bulk carriers. So this consolidation gives us balance sheet scale, it improves our EBITDA figures, and for the investor allows for an easier understanding of our structure.

In addition to those, we had four vessels in [indiscernible] tanker JV, those were distributed to two shareholders, leaving us with 200% earned tankers. The remaining three, so as I say, we had 19, I have discussed the 12 before. The remaining three vessels were sold directly out of the JVs, the last being sold in November, but the result that we no longer have any vessels housed in off balance sheet joint ventures. So, strategic initiative done.

JM: Good to see that simplification. I know when you first IPO-ed, I mentioned how the, you know, mixed fleet was kind of challenging. And you know, the joint venture is also, kind of obscured, I think there’s a lot of value in the joint ventures, but the way they were not consolidated on the balance sheet, kind of obscured a lot of the value there, your IVS book venture, is there any way to bring that fully-owned, or are those partners going to be long-term there?

MW: At the moment, it takes great partners, and they’ve been with us seven year, at the end of the day, we’ve gone through the really tough times, we have a great relationship with them. As far as we understand that they’re happy being in, obviously, values are rising. So, we will see what happens going forward, but it’s a great working relationship. And our last conversation, I think we agree, we’d love to share the [indiscernible] of this market and go forward. At some point, yes, they could well come and talk to us, and we will assess at the time. As I said, we have a number of, as you point out seven older ships, which we’ll be looking to sell, which will raise quite a lot of cash, and we will take a view of the time.

So, it will all be dependent on the market. If they’re happy to stay and we’re very happy to have them. And again, the classic thing, I don’t want to get too excited about this market. The classic thing is, when things, you know really do start to move as it looks like, you don’t want to get carried away towards the top. So, it’s always the balance. And buying and selling ships is always a part of any rising market where you’ve got to take money off the table. So, we will look at that near the time, but at the moment, it does say, it’s working very well, great relationship and let’s see where it takes us for the rest of this year into next.

JM: I think that’s reasonable. I think the consolidation of the assets onto the balance sheet and the way you report earnings will make things a lot more straightforward. We talked about with rates improving into 2021, you’re going to have a lot more cash flow available. So, with that additional cash flow available, what’s going to be the primary focus for capital allocation, and is there a target leverage range? If so, are you already there?

SG: J, Steve here. I’ll take that one. So yes, we will be using cash generated from, you know the current strong drybulk market. First off to reduce debt and to strengthen our balance sheet further. The (maze debt) is our first target, which will be paid down cleared by combination of the proceeds of the sales of those three tankers, which Martyn referred to that on the market. And as mentioned earlier from the cash generated from our current strong spot market earnings. So, following that, we’ll likely look to a combination of further debt repayment, and cash retention in order to improve our liquidity and balance sheet flexibility in case markets take an unexpected down turn.

So, your question on regards to targeted leverage, based on December valuations our average bank debt on the vessels was a touch under 60%. So, in 2020, the interest expense and debt repayment that amounted to just over 4,000 per day, which is roughly 40% of our own drybulk fleet, breakeven cost per day. So, a reduction of $1,000 per day there or say a reduction from 60% to 45% loan to value based on December valuations. Yeah, which is certainly a minimum target would improve our cash position by 8 million a year based on our current fleet.

JM: Yeah, certainly something to watch. But the leverage sounds reasonable, a little bit on the high-end in terms of direct-to-vessels. So it sounds like a little bit of deleveraging might be in the cards for 2021. Are there any official dividend plans or policies?

SG: No J, Steve, again, I’ll take that. Yeah. So following on, from what I mentioned on the on the earlier question with regards to strengthening our balance sheet, you know, thereafter with no planned CapEx, yeah, we look to start paying a dividend as we move further into the cycle. And, you know, I guess if for whatever reason, our share price doesn’t react to these higher earnings, you know, we would then consider further share repurchases to what we did at the end of 2019, where we bought back 300,000 shares.

JM: Yeah, share repurchases are always interesting when the company trades at a large discount to NAV, there’s definitely some share acquisition there.

MW: The secret is, if you look at S&P brokers, the big boys, their valuations, and we get [indiscernible] every quarter, every quarter last year they went down, which was kind of understood at the beginning, but we’ve been scratching our head how 31, December valuations could be, to be honest, fairly substantially lower than 30, June valuations when the market had changed out all proportion. So now as we heading, obviously now, and we can see from the S&P market has been the most active in 10 years, a lot of great buyers are out there, every ships being inspected, and a lot of owners are pulling their ships from the market, which is interesting decided they don’t want to sell them after all.

So, we’re anticipating conservatively 10% to 15% up on Q1. And this will move forward because you can’t have low handysize values where the ships are running $16,000, $17,000 a day. I mean, otherwise, we won’t be ship owners. So, our gap on NAV, it’s going to be closing, there’s no doubting, but the predominant way that happens, of course is through the value of the freight rising, and obviously cash generation and what we do with it thereafter.

JM: Yeah, let’s hope for the best cash generation, but you know, ideally, if your discount range is not close, I definitely agree that repurchases make sense here. I know he did some in the past. And of course, it always depends on you know, how good the market is? Where your liquidity is at, what your leverage looks like, and so on? One of the points I’ve kind of pushed you on a little bit since IPO is, the Grindrod does semi-annual reporting, and I know that’s all you really have to, in fact, foreign listed firms really only have to do their annual filings, but is there any plans to change to a quarterly?

SG: Yes J. We understand that quarterly reporting is the norm in the U.S. And we are committed to gaining the quarterly [reporting rig]. We are however working through some technical issues, you know, that we are hoping to resolve in time for Q1 reporting. So, you know, we will keep the investor market abreast of those developments.

JM: So, if I heard you correctly, Steve, it sounds like they plan, the ideal plan is to do a quarterly report for Q1 of 2021, but not 100% committed to that yet, is that correct?

SG: Yeah, that’s right. So, we committed to quarterly reporting. That’s a case of whether we can get there for Q1.

JM: Certainly makes sense, Steve, and, of course, I saw your [ford fixture] guidance in the Q4 report, and it sounds like, you know, of course, you fix some of that spot coverage, you know, in probably at the end of November into December. So, it seems like Q2 is going to really be the strong quarter in terms of big cash flows. Quarter one is going to be decent, but quarter two is really going to be the banger. So, it would be nice to be able to split those up in the quarterly reports. I think sometimes some of that gets lost in the semi-annual or, you know, let’s be honest, if we have to wait for a semi-annual report, we might not see half 2021 results until what, like, August or September. So, quarterly format, I think there’ll be a lot more investor interest. So, that’s my advocacy piece for today.

SG: Yeah. Thanks, J. And we understand that. And, you know, absolutely, if you go – the problem is, if you go for the six monthly reporting, you can’t give it up into the two quarters. So, we understand that. And that’s why we’ve seen what we can do if we can work through these technical issues. But having said that, if it doesn’t happen now, you know, we committed to getting to quarterly reporting, to be in-line with all of our peers.

JM: Yeah, thank you. Thank you, Steve. And we’ll keep in touch and hopefully look forward to seeing those Q1 results and really fascinating turn in the market. Hopefully, it’s got some legs, you know, battle-scarred right from the 2010s, where every little upturn was like a false start. And I think other investors feel the same way, and it would be nice to see a little bit more follow through like we saw in the early 2000s, right, there’s multi-year follow through. So, hopefully, that’ll be the case, but you never know in shipping. So, as kind of a closing question, chance for you, Martyn and also, Steve, if you want to pitch in at all, why should investors consider Grindrod as opposed to peers? Like, I mean, there’s a lot of drybulk companies out there. There’s like 11, right. So, why should investor focus on Grindrod? What do you offer that’s different? And what are your core focuses?

MW: Obviously, we’re in a – we’re specialized. So, it is – the end is Supers Ultras, when the capes join this party as they would at some point, and obviously, if [indiscernible] rates start screaming 40,000, 50,000, 60,000 everyone’s going to be looking at them, which will be exciting, which are great for sentiment. For us, say we were pretty specialized. We have a high quality fleet and one thing you must remember about the S&P market, it is 90% of the bars, 85% of the bars are Greek. And they all want one thing. They basically want Japanese built ships because that’s what they understand the reliability.

So, you will always see in any market that there’s a disconnect of about 30% 35% between Japanese secondhand and Chinese secondhand and this will increase in a decent market. Yes. The (adage) that all boats will be floated on a good tide, but we have a lot of value in our fleet if we then choose to start playing in the S&P market. We also have genuine outperformance. We don’t do kind of in-house tailored indices. We report against the Baltic 58 Index and our performance is against that. So, the outperformance we’ve historically done of some 20%, 25%. That’s all genuine. So, we are there high quality. We have the backup of a percentage of cargo, we’ve always had. So, we will get through it. So, yeah, a lot of great names, we’re looking again. Investors kind of, for the long haul maybe would be lovely to be in a position, but again, we need a bigger market cap, kind of long only taking a longer view on us. And so with no capex, as Steve said, going forward, once we’ve sorted out, you know, that deleveraged a bit, it goes straight to the bottom line and become dividend paying at a certain level. And I think the question is, why wouldn’t you buy our shares?

JM: Why would you not? Alright, Martyn. Well, I haven’t bought any yet. So, maybe I need to get on that. I need to get to work. Maybe I missed the train there? But no, anyways, Martyn and Steve, thank you both for joining us today. I think it was useful, especially with talking about the small size bulker market because that’s a market segment that usually doesn’t get a lot of attention. And right now it’s basically the most exciting segment of drybulk. So, thanks again for joining.

MW: Absolute pleasure and thank you J. Appreciate it.

SG: Pleasure J.

JM: This includes another iteration of Value Investor’s Edge Live. We just finished hosting Grindrod Shipping, hosting the CEO, Martyn Wade; and CFO, Stephen Griffiths. Grindrod Shipping is a drybulk focused firm focused on the smaller and midsize drybulk assets. As a reminder nothing on the call today constitutes investment advice or company guidance in any form or fashion. I have no current position in Grindrod Shipping, stock symbol GRIN. This was recorded on 4 March 2021 at about 8:00 A.M. Eastern time.

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This article was written by

J Mintzmyer profile picture.

J Mintzmyer
Author of Value Investor’s Edge
Deep value, stable income via top-tier shipping, MLP, & midstream analysis.

Disclosure: I am/we are long GNK, NMM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.