Fair forecast for fishing group
With the global demand for fish set to rise, Sea Harvest is well-positioned to capitalise on this trend.
established in Saldanha Bay in 1964, Sea Harvest is today one of South Africa’s largest and most recognised fishing groups, and this year listed on the JSE. The business owns the trawling vessels it operates, as well as its own processing facilities. It distributes its branded frozen seafood products around the globe.
The bulk of its operations are in SA, focused on the catching, processing and marketing of Cape hake, found along the south-western coast of Southern Africa. Last year, the group expanded its geographic presence with the acquisition of a controlling stake in Australianlisted business Mareterram, which catches and markets prawns. Brimstone Investment Corporation holds a 55% majority share in Sea Harvest, contributing to the group’s strong BEE credentials, which are important for securing fishing rights in SA.
Sea Harvest operates a sustainable fishing business and has made significant recent capital investments to improve efficiencies and increase its export capabilities. We believe the group is well-positioned to benefit from demand for wild-caught seafood in both local and international markets.
A sustainably managed resource
granted a 15-year right to a proportion of the annual TAC. Commercial fishing companies are granted fishing rights mainly based on the applicant’s transformation credentials, capacity, past performance and employmentcreation track record. Sea Harvest currently has access to 28% of the hake TAC, which reflects the company’s strong BEE credentials and employment track record. The next fishing-rights allocation assessment will be held in 2020, for which we believe the group is well-positioned.
Industry dynamics result in premium pricing
Global fish consumption has reached all-time highs and demand for fish is expected to continue to climb. This is a result of population growth, shifting dietary patterns in favour of higher protein consumption, international trade providing wider consumer choices, and growing awareness of the perceived health benefits of seafood. However, while demand has grown, the supply of wild-caught fish has been stable for the past three decades at around 90m tonnes a year, with 32% of fish sources overfished and most of the rest optimally fished.
This strong growth in demand for a resource with limited supply will enable producers to continue to command strong prices. Sea Harvest has well-established long-term relationships with an international customer base, and is positioned to benefit from this price dynamic. which increase the group’s capacity for frozenat-sea products. These products are targeted at the export market, predominantly Europe and Australia, and are more profitable due to the higher pricing in these markets.
Cape hake is well-recognised internationally and is priced as a premium fish. Sea Harvest currently exports around 40% of its volumes and has a target to increase this to 50% while reducing its current proportion of sales to the local food service industry, which attracts lower margins. This shift towards highermargin export sales should be accompanied by higher profitability.
Platform for growth in Australia
Mareterram primarily catches prawns – the most widely consumed seafood in the Australian market – off the coast of Western Australia. The fishery is MSC-certified and, in contrast to the situation in SA, Australian fishing rights are allocated in perpetuity and treated like a property right. Mareterram holds a 5% market share in the wild-caught prawn industry in Australia. Similarly to Sea Harvest’s SA operations, it has its own food service segment that provides a pathway to the market for Mareterram-caught products and other imported frozen seafood products.
This acquisition allowed Sea Harvest to diversify its product offering and earnings. It also serves as a platform to potentially consolidate the fragmented Australian fishing sector through further acquisitions. With its proximity to the growing Asian markets, Australia is an attractive market in which to operate.
Further upside expected
Sea Harvest’s recent investments position it for ongoing growth and higher profitability in the coming years. The group has exciting opportunities for both organic and acquisitive growth in SA and Australia, and its strong balance sheet and experienced management team give it robust capacity to act on them. ■
A Sea Harvest vessel in the harbour