Simply Wall Street says the Oceana shares are trading at more than 20% below its fair value estimate of R73.31. Analyst Anthony Clarke of SmallTalkDaily research agrees, although he notes that there was some disquiet from the market over the valuation of Daybrook now, bearing in mind what was paid for it many moons ago. 

Chief financial officer Ralph Buddle says the company has reverted to an equity accounting treatment of Westbank, following a “rigorous process with independent accounting experts, Kim Bromfield and Garth Coppin”.  

“Mazars have evaluated this and issued an unmodified review opinion, so we are back to the Deloitte position we had in 2020. The bottom line is that it has no impact on net profit or net asset value, but we believe it is a fairer and better reflection of the way in which we account for our associate,” Buddle told analysts and shareholders in a results webcast on Monday.

However, Clarke was somewhat dismissive of the overall effect of the change. 

“If you strip out Daybrook at its present value, the remainder of Oceana is in the books for less than R2-billion, which is crazy cheap. But that’s academic because there are no plans to unbundle Daybrook,” he says. 

Rather, his sentiment was that Oceana plans to build on further fishmeal acquisitions internationally to augment and bolster the existing business. 

Visit Daily Maverick’s home page for more news, analysis and investigations

Clarke says although Lucky Star had a tough second half, it was doing well with new brand extensions into canned meats and other value products.

“I think the share price has reacted favourably. I had a buy on the stock at R46 to R48 because the stock had been beaten down on the back of the scandals (earlier this year). I looked through all of that because the inherent nature of the business remains strong. 

“The total allowable catch (TAC) is set in stone for 15 years. Oceana didn’t lose any TAC in the last allocation announced earlier this year and it looks like the new TAC allocation for 2023 in hake should increase by 5%. 

“So, unlike Sea Harvest and I&J, Oceana will be a net-net beneficiary of the changes in the long-term fishing allocations, which adds to the inherent value of the company.

“To me, Oceana remains incredibly cheap at R56. I have a R72 valuation. Once the market starts looking past the noise, the refocusing of the business and a few more results … the ‘sins of the past’, if I can put it that way, will be forgotten by the market and they will just look at inherent valuation and the business prospects. 

“Oceana remains one of my top picks in the food producer sector. Fishing is a fairly resilient business and internationally the product is in demand. There are constraints to the catch. It may take another one or two reporting seasons for the market to wake up and smell the sardines. Then the share price will start to move,” he says.

The optimistic sentiment might be a result of renewed market confidence following the appointment of chief executive Neville Brink in June this year, after corporate drama in the first six months of the year. 

In the space of a few months, the company’s chief financial officer was suspended and later dismissed, the chief executive officer resigned citing personal reasons, the publication of the financial statements was delayed, and then the company’s external auditor, PwC, resigned on the grounds that communication with the board was not objective and transparent.

Shareholders have also taken a hit with a 3% drop in the total dividend to 346 cents a share. 

However, Brink told shareholders that the company had delivered credible results, with three key pillars being the Daybrook Fisheries in the United States, Lucky Star canned pilchards and the fishmeal business in South Africa.

For the year to September 2022, group revenue from continuing operations grew 12% to R8.1-billion on the back of positive pricing, higher fishmeal and fish oil sales and the benefit of a weaker exchange rate on export and US-dollar translated revenue. This also saw the gross margin from continued operations inch up to 30.8% from 30% the previous year.

Revenue from total operations increased 11% to R8.4-billion, but this figure includes Commercial Cold Storage, which has been treated as a discontinued operation as Oceana is currently in the process of selling it for R760-million.

Looking ahead, Brink says higher opening inventory levels of canned fish, fishmeal and oil will benefit the first half performance in 2023. 

“A continued weaker rand will support the export and US dollar-denominated businesses, while higher fuel costs will negatively affect the performance of the deep-sea and midwater trawling units. Demand for low-cost protein is expected to continue to drive sales volumes of canned fish despite the constrained consumer environment,” he says.

Brink adds that growing the Lucky Star brand into new canned food categories remains a key focus area. In the US, projects to enhance raw fish storage capacity and fish oil production technology will be undertaken during the closed season, which commenced on 1 November. BM/DM