Man­ag­ing to avoid heavy swells, spear in hand

Financial Mail - Investors Monthly - - Analysis - Larry Claasen

On the sur­face, Oceana looks like it has noth­ing in com­mon with Alaska’s Inuit, Aus­tralia’s Abo­rig­ines and South­ern Africa’s San. Oceana CEO Fran­cois Kut­tel sees it dif­fer­ently, how­ever, as he likes to de­scribe his fish­ing com­pany as a “hunter gatherer”.

Like the Inuit, Abo­rig­ines and San, his ships have to go out into a hos­tile en­vi­ron­ment to hunt for food. Kut­tel’s com­pany does this with mod­ern equip­ment and in a reg­u­la­tory en­vi­ron­ment that tra­di­tional hunter gath­er­ers could hardly imag­ine — but es­sen­tially they do the same thing.

This means Oceana faces many of the same ob­sta­cles, like unco-op­er­a­tive weather and dwin­dling food stocks. It also has the added bur­den of hop­ing that con­sumer tastes do not change and main­tain­ing the fresh­ness of its catches across thou­sands of kilo­me­tres.

With close to no con­trol over their en­vi­ron­ment and also hav­ing to deal with the re­stric­tions that come with fish­ing quo­tas and en­vi­ron­men­tal reg­u­la­tions, it comes as no sur­prise that there tend to be sharp peaks and val­leys in the re­sults of listed fish­ing com­pa­nies.

One year they can have great weather and large catches but the next could see a size­able re­ver­sal in their for­tunes.

For the most part, Oceana has man­aged to avoid these large swings. By di­ver­si­fy­ing ge­o­graph­i­cally and ex­pand­ing the range of fish it catches, it has been able to pro­duce more con­sis­tent num­bers over the last few re­port­ing pe­ri­ods.

It has taken over Food­corp’s fish­ing in­ter­est, has diver­si­fied into cold stor­age and has just bought US-based Day­brook Fish­eries.

Its re­sults for the half year to end-March show it has cre­ated some re­silience. It saw rev­enue rise 9% to R2,56bn but op­er­at­ing profit dropped 12% to R340,7m and profit be­fore tax fell 14% to R335m.

The group says “ad­verse con­di­tions in the horse mack­erel di­vi­sion” hurt its over­all per­for­mance but points out that its other di­vi­sions did well. Its cold stor­age busi­ness, CCS Lo­gis­tics, along with its canned fish and fish­meal di­vi­sion — which houses its Lucky Star brand — and its lob­ster, squid and French fries di­vi­sion all showed earn­ings growth.

Its diver­si­fi­ca­tion strat­egy has paid off but its takeover of Day­brook Fish­eries could be a game changer for the group. Based about 60 km from New Or­leans, Louisiana Day­brook Fish­eries owns 11 re­frig­er­ated ten­der ves­sels, 10 sin­gle Cessna air­craft and a pro­cess­ing plant. It gen­er­ated $114m (R1,2bn) in rev­enue and $43m (R454m) in earn­ings be­fore in­ter­est, tax, amor­ti­sa­tion and de­pre­ci­a­tion for the year to De­cem­ber 2014.

If Day­brook Fish­eries is able to repli­cate these num­bers this year, it would be a sig­nif­i­cant boost to Oceana’s over­all num­bers.

Tak­ing over Day­brook Fish­eries has not come cheap. Oceana had to raise R1,2bn from its share­hold­ers to fund the $382m deal.

It looks like Day­brook Fish­eries is not the last ac­qui­si­tion the group is about to make, as it hinted more could be on the cards when it an­nounced at the com­ple­tion of the takeover: “It will also pro­vide Oceana with a plat­form to ex­plore fur­ther ini­tia­tives glob­ally.”

From an in­vest­ment point of view the group has a lot go­ing for it. With 7bn peo­ple on the planet there will al­ways be a de­mand for the pro­tein that fish pro­vides — be it a main course or in the form of fish­meal.

It is also en­cour­ag­ing that its ma­jor share­hold­ers, Brim­stone and Tiger Brands, have shown con­fi­dence in the group by sup­port­ing the rights is­sue to take over Day­brook Fish­eries.

At around R92,51/share and a PE of 17,45 it looks fully priced, but it also has to be noted that it has a ten­dency to pay out hand­some div­i­dends. It in­creased its an­nual div­i­dend by 17% to R3,77/share last year.

Oceana is in no way a penny stock, but, given its prospects, it looks like a solid in­vest­ment.

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