Sink­ing or swim­ming?

One of the big­gest fish­eries in the world, Oceana’s share price re­cently took a dip. It has also lost a por­tion of its horse mack­erel al­lo­ca­tion. Will this di­ver­si­fied player re­cover?

Finweek English Edition - - MARKETPLACE - Editorial@fin­ Mox­ima Gama has been rated as one of the top five tech­ni­cal an­a­lysts in South Africa. She has been a tech­ni­cal an­a­lyst for 10 years, work­ing for BJM, Noah Fi­nan­cial In­no­va­tion and for Stan­dard Bank as part of the re­search team in t

three-hun­dred-and-twelve mil­lion kilo­grams of seafood is con­sumed in South Africa each year, with half of that be­ing lo­cally caught. Oceana Group, Premier Fish­ing and Sea Har­vest are the big play­ers in a sec­tor worth about R14bn.

Oceana Group Ltd, in­cor­po­rated in 1918, is the largest fish­ing com­pany in South Africa. Listed on both the JSE and the Namib­ian Stock Ex­change (NSX), the group con­sists of var­i­ous op­er­at­ing sub­sidiaries in the fish­ing and com­mer­cial cold stor­age in­dus­tries.

In the third week of April, the group’s share price fell 3.3% to R98.86 af­ter an­nounc­ing that its results for the six months to end March, sched­uled for re­lease on 18 May, were ex­pected to show a drop of be­tween 15% and 18% in head­line earn­ings per share (HEPS). Oceana owns the best­selling brand Lucky Star (canned pilchards). A drop in canned fish sales and wrong bets on the rand ac­counted for 14% of the fall in HEPS. Its Com­mer­cial Cold Stor­age Lo­gis­tics divi­sion also ex­pe­ri­enced a drop in its Gaut­eng busi­ness, driven by losses on for­eign-ex­change con­tracts held to cover the im­port of frozen fish.

Oceana’s dom­i­nant po­si­tion in the South African mar­ket and the sig­nif­i­cant in­dus­try bar­ri­ers to en­try for smaller play­ers gives it some pric­ing power. How­ever, the re­cent en­try of a min­now called Premier Fish­ing – which is spun out of African Em­pow­er­ment Eq­uity In­vest­ments – may have rocked the boat a lit­tle.

The com­pany’s most prof­itable seg­ment is horse mack­erel and hake, and Oceana has lost a chunk of its horse mack­erel al­lo­ca­tion, with PremFish be­ing one of the ben­e­fi­cia­ries. Talks that Oceana may lose por­tions of its fish­ing rights al­lo­ca­tions were rapidly coun­tered by man­age­ment. The com­pany re­as­sured in­vestors that it was well-di­ver­si­fied with one third of its busi­ness com­ing from Lucky Star and its cold stor­age busi­ness and another third from the US-based Day­brook, where long-term fish­ing rights are well in or­der. There­fore, only 20% of the re­main­ing third of this seg­ment was af­fected by fish­ing rights in SA.

Tech­ni­cal anal­y­sis:

Oceana, which ranks as one of the top five big­gest fish­ing en­ter­prises in the world, is trad­ing in a down­ward channel, which com­menced in March 2016, af­ter test­ing an all-time high at 13 475c/ share. Cur­rently test­ing the lower slope of its long-term channel and with both the three-week and three-month rel­a­tive strength in­dex (RSI) in over­sold ter­ri­tory, a re­cov­ery within its ma­jor correction seems un­der way.

Move­ments in the rand against the dol­lar, govern­ment de­ci­sions on fish­ing rights and lev­els of con­sumer spend­ing all af­fect Oceana’s over­all per­for­mance. There­fore, keep a close eye on rand move­ment, as a weak­en­ing of the lo­cal cur­rency usu­ally gives the com­pet­i­tive­ness of Oceana’s ex­port prod­ucts a boost, and al­though the rand weak­ened dras­ti­cally over the past few weeks, it has re­gained con­sid­er­able strength.

How to trade it:

Go long: A move above 10 355c/ share could lead to ei­ther the 12 360c/share prior high or the up­per blue bold slope. In­crease po­si­tions above 11 545c/share. Go short: Breach­ing the lower slope of the channel could kick-start a steeper bear trend. Down­side through 8 700c/share could ex­tend losses to 6 450c/share. In­crease shorts or go short be­low 8 700c/ share.

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