Don’t wait to dangle your bait
Growth in global population, and healthier eating, must boost fishing stocks
Cash-flush Sea Harvest looks worth hooking, with the potential to secure more deals locally and overseas
Fishing company stocks, supplying a valuable commodity with a naturally rising demand, should be excellent investments.
Oceana Group remains the sector heavyweight on the JSE. But last year two companies were unbundled from their respective BEE investment holdings entities.
Premier Fishing & Brands was part-listed out of AEEI at R4.50 in March 2017 to raise R526m of fresh capital. A month later Brimstone part-listed Sea Harvest at R12.50 to raise R1.3bn.
There were rumours consumer-brands conglomerate AVI would list its I&J fishing interests in 2017. That fell by the way. At some stage a deal will be forthcoming as I&J fails to meet the impending updated fishing sector empowerment credentials.
The local fishing sector has undergone changes in the quota rules on the allocation of species. This is to be implemented as a BEE transformative update by the department of agriculture, forestry & fisheries (DAFF) in 2020 under its Fishing Rights Allocation Process. This wants greater economic transformation and the inclusion of more blackowned and managed fishing companies. In these long-term rights the DAFF gives an allocation in a total allowable catch (TAC), which sets the amount of species that may be caught in any given year.
Some of this TAC allocation, as an example, in hake is concentrated with Oceana and Sea Harvest. With the TAC being tightly managed, if there are more players and the pot is not expanding, bigger players may well see their TAC allocations cut in favour of better empowered, new, small players.
This pressure to meet the new guidelines is one of the keys to growth of Premier Fishing and Sea Harvest. It is also a wake-up to the many unlisted fishing companies which have yet to adequately transform.
Premier, as the smallest listed player and worth R1bn, has the best package of empowerment and already meets the 2020 guidelines. Sea Harvest (worth R3.3bn), is well empowered. Oceana (R11.3bn), has fair empowerment via Brimstone, which happens to be a 54.9% shareholder in Sea Harvest.
The key is scale and historic TAC allocation. Given the size of Oceana, it is unlikely it will be a net winner in the new long-term fishing rights allocation. There is a chance its species allocation in hake, horse mackerel and other pelagic species will be cut. This is why it has expanded overseas via the acquisition of US-based fishmeal business Daybrook for $382m, to insulate itself from possible domestic TAC cutbacks.
Premier and Sea Harvest have used the ticking clock to 2020, and their cash piles, to trawl the unlisted fishing sector for companies sans BEE credentials. These unlisted stocks are aware that if they delay transformation, they may not have a business or TAC allocation post 2020.
Premier recently netted 52% of domestic squid business Talhado for R100m. Sea Harvest acquired Viking Fishing for R884m, which brings sizeable domestic interests to Sea Harvest in a diverse range of fish species and aquaculture.
The big price deal will be I&J. With it having only the minimum BEE credentials, a R2bn-plus deal has to come at some stage.
Premier is trading on an earnings multiple of 12 and Sea Harvest is similar. Both have acquisition benefits to come in their 2018-2019 financial results.
Oceana, however, is mired in a technical ownership issue with its US fishmeal business and weak results — but still trades on an earnings multiple of 16, even though its share price has been bumped down markedly in the past 12 months.
Cash-flush Sea Harvest looks worth hooking, with the potential to secure more deals locally and overseas. My smaller catch would be Premier. It is the bestplaced and empowered listed fishing stock and will surely gain new TAC in a range of species post 2020.