I do my very best to attend the monthly meeting of our lunch/investment club. I missed last week’s assembly (domestic crisis, don’t ask). It was a fortunate absence. While it’s all a bit of fun debating whether the dividend fund is plump enough to order starters, the boys do take the share picking very seriously. Blows have been exchanged at the table.
I still wince at Ben’s jocular jab into Mr B’s ribs — the resounding thud and audible cartilage crack caused the sommelier to spill precious grappa. At last week’s lunch, Ben might have been inclined to be less playful in prodding me about my insistence on picking Gemfields as a yield sweetener (even if Merafe worked out as planned).
Gemfields released a trading update only a few hours before the investment club lunch, warning of markedly lower earnings. Even stripping out the fair value loss on its Sedibelo platinum venture, 35c a share was well below the number I gleaned from some good gem auction outcomes. I’d have been violently slapped down for suggesting that we double down on Gemfields. Yet the group still has ample cash resources to underpin a decent payout. Interim numbers will follow shortly after this column appears.
Speaking of tricky trading updates, fishing group Oceana and timber group York certainly gave the market plenty to mull. Other than the odd rally in the past 30 years, York has been a pretty tedious investment for long-term backers. So, asking shareholders to exercise patience seems cruel and unnatural — but that is the state of play.
The share price after the trading update is sitting at about the same level at which its R250m rights offer (finalised early this year) was pitched. With A2 Investment Partners — which certainly doesn’t skrik for challenging turnarounds (see Novus and Nampak) — now in a commanding position, there might be some merit in seeing the wood for the trees.
York says profitability in the year to end-June has been affected by price increases in external logs purchased, and operational costs not recovered in selling prices. The external log buying stemmed from York’s strategy to increase the clear-fell age of its own plantations. Market scepticism will ensure that this prudent longer-term strategy is obscured by the estimated loss of 90c a share for the year to end-June.
These are great numbers, but I wonder if shareholders should temper their expectations for Daybrook
It’s worth remembering what York’s earnings might look like down the tree line as it harvests from its own plantations. The biological asset valuation at the end of December 2022 was almost R2.9bn and my hard NAV calculation is about 795c a share. Even with a couple of years of tough love on the forestry management side, there is a considerable margin of safety in a 175c share price.
Oceana, commendably, gave a timeous and detailed trading update for the 11 months to (almost) end-August. Lucky Star’s canned fish sales volume for the period was 8% higher at 8.7-million with increased demand for affordable and “shelf-stable” protein.
There are a few cost issues (higher tin prices and imported raw materials), but the expected resilience in this protein niche is illustrated in the decision to hold higher inventory levels “to service expected strong demand”.
The local fishmeal and fish oil business saw strong fish oil pricing (helped by the weaker rand) — up a hefty 32% in the 11 months to end-August. But sales volumes were 8% lower and production volumes 24% down because of bad winter weather.
Much is expected from the Daybrook fishmeal and fish oil operations in the US this financial year. Things are still going swimmingly, with hitches in Peru’s anchovy fishing grounds causing lower supply into stable global demand. This pushed dollar fishmeal sales prices up 9% and fish oil sales 38%. These are great numbers, but I wonder if shareholders should temper their expectations for Daybrook.
It’s worth noting that fish landings were 5% lower, and that above-average water temperatures in the Gulf of Mexico and abnormally low water levels in the Mississippi River messed with fishing operations in the past five weeks. This is not great news as Daybrook goes into the last eight weeks of its fishing season.
What’s more, fish oil yields were slimmer at 7.9% due to lower fat content in the fish landed. The bottom line is that improved opening inventory levels contributed to increased sales volumes, with fishmeal sales volumes up 49% and fish oil sales volumes shifting up 27%. Profit nets should bulge in the 12 months to end-September, though the new financial year could be a trickier tide. Still, the market seems happy, with Oceana shares up more than 7% in just a few days.
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