Clever move sur­mounts ad­ver­sity and ex­pense

Financial Mail - Investors Monthly - - Analysis -

The mar­ket seemed to be in two minds over prospects for di­ver­si­fied fish­ing group Oceana prior to the release of its year to end Septem­ber re­sults.

With no trad­ing state­ment to nav­i­gate by, some dif­fer­ence of opin­ion was in­evitable.

Sen­ti­ment in the fish­ing in­dus­try thrives on anec­do­tal ev­i­dence around po­ten­tial per­for­mance. Oceana’s di­ver­sity has usu­ally al­lowed the com­pany to smooth out choppy pe­ri­ods, but this year dark mut­ter­ings sug­gested that the usu­ally de­pend­able com­pany was strug­gling to net de­cent catch rates in its key horse mack­erel seg­ment. In the end the old salts were spot on about Oceana’s tra­vails in that depart­ment, which in re­cent years has ranked as a star per­former. Au­dited re­sults showed prof­its dropped al­most 40% in the horse mack­erel and hake di­vi­sion to R211m af­ter poor catch rates in South African wa­ters and a higher cost at­tached to Namibia im­ports.

What is wor­ry­ing is that Oceana hasn’t been able to lo­cate vi­able schools of horse mack­erel in fa­mil­iar fish­ing grounds. Such species mi­gra­tion does hit the fish­ing in­dus­try ev­ery so of­ten, and there is not much that can be done about it.

At least the rest of the fish­ing busi­ness man­aged prof­itable hauls. Oceana’s canned pilchards busi­ness, Lucky Star — a pro­tein sta­ple in mil­lions of lo­cal house­holds — and fish­meal seg­ment looked ro­bust, with rev­enue in­creas­ing 10% to R3,4bn and op­er­at­ing profit ris­ing a whole­some 19% to R453m.

But on closer ex­am­i­na­tion it seems Lucky Star’s vol­umes dragged in the sec­ond half af­ter be­lated con­sumer re­sis­tance to a price in­crease in Jan­uary this year. In fact, the mar­gin gains in this di­vi­sion were due largely to higher land­ings of in­dus­trial fish to the fish­meal plants (which boosted pro­duc­tion ef­fi­cien­cies and low­ered the cost of man­u­fac­tured prod­uct).

Fish­meal prof­its were also helped by the weaker rand and strong global pric­ing.

For­tu­nately, there was an un­ex­pected catch. What the mar­ket was not count­ing on was the ex­tremely en­cour­ag­ing profit do­na­tion by re­cently ac­quired US-based fish­meal and fish oil spe­cial­ist Day­brook Fish­eries.

Day­brook, which was of­fi­cially ac­quired on July 1 for US$382m, con­trib­uted for just three months of Oceana’s fi­nan­cial year. But the ini­tial profit was a bet­ter than ex­pected R180m from stout rev­enues of R574m.

Though it’s prob­a­bly not wise to try “an­nu­al­is­ing out” three months’ per­for­mance of a sea­sonal fish­ing busi­ness, the ini­tial rev­enue and op­er­at­ing profit line from Day­brook does seem to con­firm that pre­dic­tions for a 12-month Ebitda num­ber of $45m are not un­rea­son­able.

It may be a bit pre­ma­ture to ask whether Day­brook could be a game changer for Oceana. But it’s worth not­ing that Day­brook ex­ceeded pro­duc­tion tar­gets by 20% by land­ing 650m Gulf

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