Technical analysis: Grindrod

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Trading at attractive bullish levels

Grindrod is a holding company with more than 100 years of experience in the South African logistics industry.

Through subsidiaries and joint ventures, the company operates in three divisions: freight services, shipping, and financial services in the trading, handling and transportation of bulk commodities – which include agricultural products – by road, rail, sea and air. The group’s global business is represented in more than 24 countries and is uniquely positioned to service trade flows among African nations.

Share price history

Grindrod’s share price has peaked twice at 2 085c/share – in 2008 and again in 2014. After pulling back in 2008, the share price regained upside when it sold a 50% interest in Cockett Marine Oil to Vitol. Grindrod had acquired 100% in Cockett in April 2008, which is one of the leading marine fuel suppliers in the world. Selling 50% to Vitol Group in 2012 – the largest independent energy trading business in the world – was a ploy to swell the size of its business.

However, after failing to trade through its prior 2008 all-time high at 2 085c/share, Grindrod’s share price commenced a gradual decline. The group suffered a plunge from a R1bn net profit in 2014, to a loss of R1.3bn in 2015, due to weak commodity markets and dry-bulk shipping rates, which reduced demand in the rail sector. The ongoing drought impacted business from the agricultural sector as SA suffered one of the worst droughts in 30 years in 2015.

Current outlook

Grindrod’s share price rapidly gave up more of its gains during the Covid-19 pandemic sell-off – it tested a low last reached in 2004 at 280c/share in April 2020. Having retained firm support above that level, buyers began to resurface by September 2020 as global demand started to recover amid the pandemic. Also, Grindrod beat its own forecast with a 25% increase in operating profit to $1.7bn in the second quarter of 2020 compared with the second quarter of 2019.

On the charts

To pay down its debt, Grindrod has started to dispose of certain non-core businesses. The group’s subsidiary, Grindrod Trading Holdings, sold its entire stake in agricultural group Senwes to Agribel Holdings for R385.17m in December last year. A move that saw Grindrod’s share price regain upside and recently breach the resistance trendline of its steeper bear trend that commenced in 2018. According to the UN Conference on Trade and Development’s latest report they expect maritime trade growth to return to positive territory and expand by 4.8% in 2021 after plunging by 4.1% in 2020.

What to anticipate

Grindrod’s share price has been trading at levels, which have become attractive to buyers. If this upside momentum should continue, expect Grindrod’s share price to advance towards 895c/share. A new bull phase that could push the share price back to the 2 085c/share all- time high would commence on continued gains through 1 190c/share.

Go long: A positive breakout of the steeper bear trend would be confirmed above 560c/ share – go long. But before that, the three-week relative strength index (3W RSI) is currently overbought, which means a near-term pull back is imminent. If the share price holds above 410c/share another higher bottom would form – and Grindrod could breach its buying level again. First target would be at 895c/share or Grindrod could retest a key trendline (the upper dashed black trendline in the graph). Breaching that trendline should trigger further gains towards 1 190c/share.

Go short: If support holds at 430c/share but major resistance is encountered at 560c/share, Grindrod’s share price could trade sideways– potentially forming the final shoulder of an inverted head and shoulders pattern. Otherwise, the current uptrend would be abandoned below 410c/share – in which case refrain from going long or sell below that level. Support at 280c/share could then be retested.

Moxima Gama is an independent stock market analyst at The Money Hub.

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This article originally appeared in the 4 March edition of finweek. You can buy and download the magazine here.
finweek, march, 2021

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