Fair fore­cast for fish­ing group

With the global de­mand for fish set to rise, Sea Har­vest is well-po­si­tioned to cap­i­talise on this trend.

Finweek English Edition - - MARKETPLACE PRO PICK - By Lizelle van Rooyen ed­i­to­rial@fin­week.co.za Lizelle van Rooyen is an as­so­ciate an­a­lyst at Kag­iso As­set Man­age­ment.

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

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