Managing to avoid heavy swells, spear in hand

On the surface, Oceana looks like it has nothing in common with Alaska’s Inuit, Australia’s Aborigines and Southern Africa’s San. Oceana CEO Francois Kuttel sees it differently, however, as he likes to describe his fishing company as a “hunter gatherer”.

Like the Inuit, Aborigines and San, his ships have to go out into a hostile environment to hunt for food. Kuttel’s company does this with modern equipment and in a regulatory environment that traditional hunter gatherers could hardly imagine — but essentially they do the same thing.

This means Oceana faces many of the same obstacles, like unco-operative weather and dwindling food stocks. It also has the added burden of hoping that consumer tastes do not change and maintaining the freshness of its catches across thousands of kilometres.

With close to no control over their environment and also having to deal with the restrictions that come with fishing quotas and environmental regulations, it comes as no surprise that there tend to be sharp peaks and valleys in the results of listed fishing companies.

One year they can have great weather and large catches but the next could see a sizeable reversal in their fortunes.

For the most part, Oceana has managed to avoid these large swings. By diversifying geographically and expanding the range of fish it catches, it has been able to produce more consistent numbers over the last few reporting periods.

It has taken over Foodcorp’s fishing interest, has diversified into cold storage and has just bought US-based Daybrook Fisheries.

Its results for the half year to end-March show it has created some resilience. It saw revenue rise 9% to R2,56bn but operating profit dropped 12% to R340,7m and profit before tax fell 14% to R335m.

The group says “adverse conditions in the horse mackerel division” hurt its overall performance but points out that its other divisions did well. Its cold storage business, CCS Logistics, along with its canned fish and fishmeal division — which houses its Lucky Star brand — and its lobster, squid and French fries division all showed earnings growth.

Its diversification strategy has paid off but its takeover of Daybrook Fisheries could be a game changer for the group. Based about 60 km from New Orleans, Louisiana Daybrook Fisheries owns 11 refrigerated tender vessels, 10 single Cessna aircraft and a processing plant. It generated $114m (R1,2bn) in revenue and $43m (R454m) in earnings before interest, tax, amortisation and depreciation for the year to December 2014.

If Daybrook Fisheries is able to replicate these numbers this year, it would be a significant boost to Oceana’s overall numbers.

Taking over Daybrook Fisheries has not come cheap. Oceana had to raise R1,2bn from its shareholders to fund the $382m deal.

It looks like Daybrook Fisheries is not the last acquisition the group is about to make, as it hinted more could be on the cards when it announced at the completion of the takeover: “It will also provide Oceana with a platform to explore further initiatives globally.”

From an investment point of view the group has a lot going for it. With 7bn people on the planet there will always be a demand for the protein that fish provides — be it a main course or in the form of fishmeal.

It is also encouraging that its major shareholders, Brimstone and Tiger Brands, have shown confidence in the group by supporting the rights issue to take over Daybrook Fisheries.

At around R92,51/share and a PE of 17,45 it looks fully priced, but it also has to be noted that it has a tendency to pay out handsome dividends. It increased its annual dividend by 17% to R3,77/share last year.

Oceana is in no way a penny stock, but, given its prospects, it looks like a solid investment.