ASX Seafood Sector Swimming Against The Tide

This story features SEAFARMS GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: SFG

By Tim Boreham, Editor, The New Criterion

What’s not to like about seafood, unless eating the stuff gives you a rash and a potentially fatal constricted throat?

As wild fish stocks diminish at an alarming rate, farmed seafood growers should be in their element.

Put another way: the world should be their oyster.

Fortune Business Insights puts the size of the global market at US$310bn (as of 2021) and expects this value to rise to US$605bn by 2029, a compound annual growth rate of 9%.

For the ASX-listed sector, things have not gone swimmingly with the growers prone to disease, cost blowouts and concerns over environmental practices (especially in Tasmania).

In a surprise development, the private Tassie-based Huon Valley Seafoods recently entered liquidation, reportedly owing creditors $3m.

An arm of Singapore’s Barramundi Group, Marine Produce Australia has also collapsed, owing $73m to unsecured creditors.

Meanwhile, the main project of the listed Seafarms Group ((SFG)) – the Northern Territory-based Project Sea Dragon – is in administration. The listed entity is flapping around and going nowhere.

Past ASX failures include barramundi plays Australis Aquaculture and Cell Aquaculture, the Lachlan Murdoch-backed Western Kingfish, distributor Sam’s Seafood and salmon play Tassal marque one, which collapsed in the early Noughties but was resurrected (see below).

If they don’t quietly fade away, the listed piscatorial purveyors tend to get caught in acquirers’ dragnets.

In 2021, Tasmania’s Huon Aquaculture was acquired by Brazil’s JBS Meats for $425m, but not before an entertaining tussle with rival suitor Andrew Forrest. For Twiggy, it was a case of the rare one that got away.

In 2022 fellow Tassie salmon grower Tassal was caught by Canada’s Cooke Aquaculture in a $1.7bn takeover.

A Shark Bay, WA-based producer of prawns, scallops and crabs, Mareterram in 2019 was acquired by South Africa’s Sea Harvest. Given Sea Harvest already owned 56.3% of Mareterram, this one was like shooting fish in a barrel.

There’s more: Brisbane’s Laguna Bay group this year bought out Angel Seafood, which grows oysters in South Australia’s Coffin Bay.

Beyond the takeovers and sundry failures, a handful of listed plays are swimming in the public ocean and seeking to avoid the sharks – both literally and metaphorically.

East 33 ((E33)) listed in July 2021, with the charter of growing and promoting Sydney rock oysters as a prestige provenance-based play.

Think of the great French champagne houses – and come to think of it the bivalves and champers are a great mix.

With its name derived from Sydney’s latitude – ah, we get it! – East 33 is all about consolidating financial firepower to market the world’s rarest oyster globally.

The royal-purple shellfish are only grown in NSW at 41 estuaries, 85% of the catch is sold within the waratah state.

In the 2022-23 year East 33’s revenue notched up 9% to $24.6m, courtesy of higher farm gate prices. But the company also chalked up a net loss of -$9.2m, including -$2.9m of asset goodwill impairments.

With a $14m market cap, East 33 has lost close to -90% of its value since listing.

While 120bn oysters are produced worldwide every year, only 640m end up as live exports. So we guess East 33 is still an "ocean half-full’ scenario.

Formerly known as Ocean Grown Abalone, Rare Foods Australia ((OGA)) developed Australia’s first dedicated greenlip abalone "ranching" facility in Flinders Bay, in WA. The fishery is based on a purpose-built artificial reef, with the site also serving as an underground cellar for its "ocean signature" plonk.

Rare Foods Australia grew sales revenue by 38% to $5.2m in the 2022-23 year, with the average price increasing 8% to $55 a kilogram.

So far so good, but the company lost -$1.44m. Given the company only had $20,000 in the bank as of June 30 and owes -$735,000 to the National Australia Bank, auditor BDO duly noted a material uncertainty about the company’s ability to continue as a going concern.

Should investors trust in cod instead?

With its white-fleshed produce promoted by super chefs Heston Blumenthal and Tetsuya Wakuda, Murray Cod Australia ((MCA)) is making a decent fist of growing the indigenous fish in speciality pens around Griffith.

Murray cod occurs only in the Murray Darling Basin and commercial fishing of the depleted wild population is banned.

The company points to the frequent unpleasant earthy taste of Murray cod, which is usually the result of inadequate water management.

Murray Cod Australia listed in January 2017, raising $10m.

At the time, the company was doing about 40 tonnes a year, but in 2022-23 it managed 430 tonnes.

The company has approval for 50 grow-out ponds, with 16 completed and the company aims to have 100 by the end of the current financial year.

Amid an “excellent” spawning season, Murray Cod’s revenue declined -9% to $12.3m and the company posted an -$8.6m loss. However, the price per kilogram rose 9% to $24.

Finally, the Port Lincoln Clean Seas Tuna ((CSS)) takes its place as the top fish in the ASX piscatorial food chain.

Once again, the going hasn’t always been easy for the company, which was established as the Stehr Group in 2000 and listed in 2005.

Clean Seas’ original quest was to breed southern bluefin tuna in captivity based on its unique know-how.

The venture would have been a huge money spinner with sushi chefs, but it didn’t work and the company focused on growing yellowtail kingfish instead.

The only profitable seafood play in a sea of red ink, Clean Seas produced a surplus of just under $6m in the year just gone, on record revenue of $69m (up 5%).

Sold tonnage declined -19% to 3054, but this was more to do with an inventory sell-off plumping up the previous year’s comparison.

While the "fresh is best" mantra pervades the sector, Clean Seas has developed a nitrogen-based freezing method called SensoryFresh, which means the fish fillets aren’t watery when you thaw them.

We reckon they’re on to something!

With a $75m market cap Clean Seas has had better days valuation-wise, but deserves plaudits for persevering in a cut-throat, fish-eats-fish sector.

This article does not constitute share recommendations and readers should seek their own financial advice from a properly qualified party.

Content included in this article is not by association the view of FNArena (see our disclaimer).

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