I was morbidly fixating on fishing group Sea Harvest’s annual financial statements this week. Not because the numbers made particularly difficult perusing; in fact, to the contrary. Sea Harvest is angling encouragingly in its core hake business and the effort to refocus operations on the ocean (rather than the milk lake) has been welcomed by the market.
At the start of March, the 12-month gain — with Sea Harvest cresting at R10 — was almost 50%. The morbid aspect stems from a slight disagreement with my daughter around Sea Harvest. Having grown up with the frozen hake cutlets as a household staple (remember, for the younger generation anything vaguely nutritious that can be air-fried in 10 minutes is an outright winner), she was quite keen to have Sea Harvest as part of her “familiar brands” investment portfolio. Having covered the fishing industry for the best part of 40 years, I warned against cyclicality and various vagaries that all too regularly turn tides against even the most diversified operators.
Consequently, I urged her to rather plump for AVI, which offers an array of premium household food and beverage brands as well as a sizeable exposure to the hake fishing sector, via its subsidiary I&J. AVI has pretty much been in the doldrums for a year, though the dividends are enough to float anyone’s boat. Sea Harvest, on the other hand, might now be worth revisiting, with the share price drifting back down to 850c on market worries about the impact of higher fuel prices on the cost of hauling in the hake catch.
The share is trading on a modest 4.3 times trailing earnings multiple and a five times forward multiple, with a fat 9% dividend yield. That low expectation equation might be underestimating Sea Harvest’s longer-term profit prospects, even if margins get a little chewed for a while by a bigger fuel bill.
One conspicuous area of concern at Sea Harvest remains its loss-making aquaculture operations: the 87% stake in Viking Aquaculture and 63% stake in Aqunion, both inherited in acquisitions of larger fishing businesses. Both stakes were markedly impaired in Sea Harvest’s last set of accounts — unsurprising, considering the ongoing losses and extended downturn in key abalone export markets in China and other regions of the Far East. Most worrying is Sea Harvest’s admission that there is now “strong competition supplying larger-sized genetically improved abalone at lower prices”.
Sea Harvest has already implemented a strategic decision to phase out the Kleinzee and Whale Rock farms in the current year. This seems prudent, with the aquaculture unit reporting a bloated operating loss of R59m (2024: R11m). Sea Harvest, however, is not alone. I&J’s abalone segment showed an increased R44m loss (previously a R25m loss) in the interim period to end-December. The question is whether the farmed abalone market, remembering that the catching of wild abalone in South Africa is still severely restricted, can ever regain its exotic food premium. Ten years ago, as the farmed abalone segment was gaining traction, the supposedly tasty oversized marine molluscs were even touted as “gold from the sea”.
I wonder whether Sea Harvest would sell off its aquaculture stakes to hone operational focus on its traditional fishing business
I can’t vouch for the tastes of others, but I really battled to finish cooked abalone presented to me at a lunch when visiting one of the expanding abalone farms about 10 years ago. Of course, having flown the entire distance from Cape Town to Gansbaai in a helicopter tilted sideways into a howling headwind probably did little to build up an appetite. Still, I wonder whether Sea Harvest would sell off its aquaculture stakes, accounting for just R325m of its more than R6.6bn group revenue, to sharpen operational focus on its traditional fishing business, which these days includes plying the important canned fish market with the recently acquired Saldanha brand. Perhaps not. At least, not yet. Patience in the abalone market may well win the day.
There may well be a longer-term opportunity for the bigger abalone players such as Sea Harvest and I&J, as well as unlisted but publicly traded Abagold, to perhaps consolidate a fairly fragmented sector. There might be as many as two dozen abalone operations along the southwest coast of South Africa, and many more aquaculture ventures. With abalone prices in the dumps, I can’t imagine too many of the smaller independent farms are awash with cash or have immediate access to stout balance sheets.
Moving from surf to turf, I note a smattering of buying by Shawn Meaker — whose family is well known in horse racing circles — in gaming investment group Grand Parade Investments (GPI) during March. Meaker now holds 669,500 shares. That’s far from influential, but probably still worth noting. This column has previously reflected on the slow pace of change at GPI under its new controlling shareholder, Greg Bortz, a former investment banker and gaming sector enthusiast, via GMB Liquidity Corp. GPI still mainly collects dividends from its casino and alternative gaming investments, which include the cash-spinning GrandWest casino in Cape Town.
Bortz, though, is also a big player in horse racing enterprise Kenilworth Racing, which some have suggested should be reversed into GPI. The presence of another horse racing aficionado on the share register might well whip up some excitement.
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