Don’t wait to dan­gle your bait

Growth in global pop­u­la­tion, and health­ier eat­ing, must boost fish­ing stocks

Financial Mail - Investors Monthly - - Front Page - AN­THONY CLARK

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.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.