Has the tide al­ready turned?

Financial Mail - Investors Monthly - - Front Page - Marc Hasenfuss

The tide of in­vestor sen­ti­ment has been go­ing out for Oceana Group — by far the big­gest trawler among the JSE’s fish­ing coun­ters.

Fast re­cov­er­ing chicken coun­ters, no­tably As­tral Foods, have re­cently got the mar­ket in a flap, so it might be time to con­sider whether Oceana can make a con­vinc­ing come­back.

The share is not far off its 12-month low, and the mar­ket ap­pears to be only nib­bling at the bait dan­gled in the form of a solid in­terim trad­ing up­date as­sess­ing the group’s lat­est trad­ing state­ment for the six months to end-March.

Oceana fin­ished the sec­ond half of the year to end-Septem­ber in slightly bet­ter form — but earn­ings plum­meted from the pre­vi­ous year as the US fish meal and fish oil sub­sidiary strug­gled with lower prices.

Most dis­ap­point­ing, ar­guably, was the de­ci­sion to skip the fi­nal div­i­dend pay­out.

At the time CEO Fran­cois Kut­tel — who has since stepped down to head US as­so­ci­ate West­bank Fish­ing — ex­plained that the weaker profit per­for­mance rel­a­tive to the level of gear­ing in the com­pany prompted a de­ci­sion to con­serve cash by for­go­ing the fi­nal div­i­dend pay­ment.

But Oceana did set a tar­get of re­sum­ing div­i­dends in the 2018 fi­nan­cial year.

For the record, Oceana’s cash gen­er­ated from op­er­a­tions in the year to end-Septem­ber in­creased to R1.7bn (2016: R1.6bn) — helped enor­mously by a R656m im­prove­ment in work­ing cap­i­tal util­i­sa­tion that off­set lower op­er­at­ing profit.

At the end of Septem­ber Oceana was still swim­ming in cash bal­ances of over R1.2bn with al­most R750m held in dol­lar de­nom­i­nated ac­counts. In ad­di­tion, Oceana’s bal­ance sheet showed net debt stood at R2.9bn (2016: R3.4bn) with roughly R949m de­nom­i­nated in dol­lars. The net debt to Ebitda ra­tio was 2.4 com­pared with 1.7 the pre­vi­ous fi­nan­cial year.

With the well re­in­forced bal­ance sheet and cash flow at­tributes in mind, the re­cent trad­ing state­ment should give

“IM sus­pects that Oceana is on the look­out for off­shore ac­qui­si­tions and aqua­cul­ture op­por­tu­ni­ties

some com­fort that Oceana is head­ing for less choppy wa­ters this fi­nan­cial year.

Oceana has in­di­cated ba­sic head­line earn­ings for the six months ended March will in­crease by 55%-65% to be­tween 300c and 320c/share. If we add that to the roughly 200c/share earned in the sec­ond half of the past fi­nan­cial year we can place Oceana on a for­ward earn­ings mul­ti­ple of around 16 — which is a fairly mod­est rat­ing for a busi­ness with a su­perb long-term profit track record.

Oceana in­di­cated the in­crease in in­terim earn­ings was at­trib­ut­able mainly to the re­lease of $13m de­ferred tax­a­tion in Day­brook fol­low­ing the re­duc­tion in the fed­eral cor­po­rate tax rate in the US from 35% to 21%.

Oceana said the op­er­at­ing profit be­fore as­so­ci­ate and joint ven­ture in­come and fair value ad­just­ments was ex­pected to in­crease be­tween 5% and 12%.

This in­crease, Oceana, said, was at­trib­ut­able largely to im­prove­ments in the canned fish (Lucky Star) and horse mack­erel and hake seg­ments — off­set by a de­cline in US fish­meal and fish oil earn­ings.

En­cour­ag­ingly, the solid per­for­mance of the Lucky Star canned fish seg­ment was driven by in­creased sales vol­umes and im­proved mar­gins ow­ing to lower raw ma­te­rial and lo­gis­tics costs.

Horse mack­erel and hake earn­ings ben­e­fited from in­creased vol­umes due to im­proved ves­sel util­i­sa­tion and good catch rates.

The Day­brook op­er­at­ing re­sults were ham­pered by the lag ef­fect of lower pric­ing con­tracted dur­ing the lat­ter part of 2017 and lower fish oil sales vol­umes due to a re­duced oil yield in the 2017 fish­ing sea­son.

Day­brook’s per­for­mance in the sec­ond half of the fi­nan­cial year, IM sus­pects, could be more con­vinc­ing — and put to rest wor­ries that Oceana over­paid for this in­ter­na­tional niche.

IM also sus­pects the skipped fi­nal div­i­dend may in­di­cate that Oceana — which is try­ing to lessen the im­pact of the va­garies of the long-term fish­ing quota awards — is se­ri­ously on the look­out for off­shore ac­qui­si­tions and aqua­cul­ture op­por­tu­ni­ties.

In terms of aqua­cul­ture — which is not sub­ject to the same quota award sys­tem as the main­stream fish­ing sec­tor — there are plenty of op­por­tu­ni­ties for Oceana.

As re­gards fur­ther global am­bi­tions, it could be ar­gued that with for­mer CEO Kut­tel now based in the US, Oceana has a scout who is ca­pa­ble of nav­i­gat­ing in­ter­na­tional wa­ters in search of new deals.

For the in­vestor will­ing to look past a cou­ple of short­term squalls, it might be the right time to start hook­ing Oceana shares.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.