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?
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.
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.