The fishing industry waits with ba(i)ted breath for the conclusion of the long-delayed fishing rights allocation process, or Frap, seemingly set for the end of this year.
Some believe there could be waves of change to the current quota ownership structure of the local fishing segment. Others say food security concerns and the high cost of investment in production facilities might mean the status quo is only gently rocked. But dealmaking in the sector is in limbo while the allocation process is incomplete.
One must remember that the potential for moving and shaking among local fishing companies is already curtailed by a well-intentioned but cumbersome requirement that a company may not be sold to another venture that is "less empowered". So it was most surprising to note that Premier Fishing & Brands last week issued a cautionary advising shareholders that it was in talks to dispose of an unnamed subsidiary.
PremFish specifically noted that talks were "separate from and in addition to" the cautionary published in October last year. That cautionary related to a black economic empowerment transaction involving a staff trust and a special-purpose vehicle headed by Laudeware.
It’s a brave buyer who is willing to take over a local fishing entity while the Frap is still bobbing around on a tide of uncertainty. Unless, of course, that entity is negotiating with PremFish to buy its abalone farming venture.
Aquaculture is not subject — at least not yet — to quota allocations. But considering how much PremFish has spent in time and money on ramping up production at its Gansbaai abalone farm, I would be most surprised to see it sold off. I would also be surprised if PremFish relinquished its long-held dominant position in south coast lobster. While south coast lobster has been a reliable export earner for PremFish, I don’t see buyers lining up to enter this niche. The pelagic, Seagro (plant fertiliser), west coast lobster and cold storage operations are too small to require issuing a cautionary.
I would hazard a guess, then, that PremFish might be looking at selling its 53% stake in squid fishing specialist Talhado Group. PremFish paid R106m for Talhado in late 2017, and the business has more than justified the purchase price. As an indirect shareholder in PremFish via empowerment group AEEI, I would be gutted to see Talhado set adrift, unless a commanding price is slapped down on the table.
The way I remember it, if the other shareholders of Talhado ever agreed to sell the balance of the shares, then PremFish would have a right of first refusal. This was set at a purchase price based on six times the earnings multiple. This would probably not be a bad outcome for PremFish. It bought its initial stake on an effective historic earnings multiple of just over two times.
Also, Talhado had a relatively poor six months to end-February with revenue at R107m and profit before tax at R26m. In the year to end-August 2020 it managed around R105m in after-tax profits, and has been by far the biggest contributor to top and bottom line.
Sans Talhado, I’m not sure PremFish, already roundly ignored by investors, would still justify a listing on the JSE.
Sticking with seafood, AVI-controlled hake fishing group I&J reported a 4.5% increase in revenues to R1.23bn in the half year to end-December — but operating profit plunged more than 25% to R126m.
I&J’s performance pales against that of rival Sea Harvest, which managed to show operating profit of R570m from revenue of R2.76bn in the year to end-December.
The margin for Sea Harvest (where I also hold an indirect stake via empowerment vehicle Brimstone) was 20% against I&J’s markedly thinner 10.2% (14.3% in 2019). Clearly Sea Harvest’s "scale up" with the acquisition of Viking Fishing has paid off handsomely.
Let’s hope the hake quota for both I&J and Sea Harvest is not badly disrupted in the Frap.
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