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Daybrook a ‘big fish’ for Oceana

Daybrook a ‘big fish’ for Oceana

Cape Town-based fishing industry icon Oceana – already a serious exporter of seafood - looks set to make much bigger waves globally.

The company has long hinted at taking the plunge into international fishing waters and the recently proposed acquisition of Louisiana-based Daybrook Fisheries – which has the strong backing of the company’s biggest shareholders in form of consumer brands conglomerate Tiger Brands and Cape-based empowerment company Brimstone – might just be the first offshore cast. In fact, Tiger and Brimstone are putting their money where their mouths are by underpinning Oceana’s recently confirmed rights issue of R1,2bn – which has been officially underwritten by Standard Bank.

There’s no doubt the Daybrook deal is an important juncture for Oceana. The company has struggled to find South African acquisitions that would make a meaningful impact to its bottom line … and when it did, the competition authorities or Fisheries department seemed to take umbrage. Both the Lusitania and the Foodcorp fishing deals were only landed after long (and costly) struggles.

The key question now is how aggressively Oceana will dangle its lines in international waters in the hope of snagging other global fishery companies?

Obviously it will take Oceana some time to bed down Daybrook – which adds a sizeable chunk of new operating assets. The Daybrook acquisition will cost US$382m – which is close to R5bn at current exchange rates. That means the US fishing operation represents in value around 40% of Oceana’s market capitalisation.

Fishing industry sources said while it was understandable Oceana would be looking for offshore and African acquisitions, the sheer scale of the Daybrook deal was surprising. One noted, “It is a big, bold move into a specialist fishing niche … one hopes Oceana has not bitten off more than they can chew.”

But another argued that Oceana although Oceana was steaming into unchartered waters, CEO Francois Kuttel did have extensive experience in the US fishing market.

Whatever transpires Oceana will still hold global scale. A presentation document issued by the company shows the enlarged Oceana would rank as the sixth biggest fishing company in the world with gross profits of some US$142M or nearly R1,3bn. Just as a point of comparison, Salmar - the biggest fishing company in the world - will still be roughly twice to size of the enlarged Oceana. Salmar generates profits of around US$279m. For further context it’s worth noting fifth biggest China Fishery Group generates profits of US$226m, while seventh placed Empresa Pesquera Eporva manages annual profits of US$114m.

Daybrook specialises in deriving fish oil (rich in Omega 3 oils) and fishmeal from the Menhaden species found along the Gulf Coast of America. The company is one of only two significant operators, accounting for around 35% to 40% of the annual Menhaden catch. The beauty of the business is that Gulf Menhaden fish produce billions of offspring a year, which allows the population to replenish. Oceana has pointed out that the Gulf States Marine Fisheries Commission completed an updated stock assessment that concluded that the Gulf Menhaden is “not overfished nor in an overfished state.”

The ‘bigger picture’ for Oceana is that it might be stepping into the fish oil and fishmeal market at just the right time with an increasing demand for protein. Fishmeal and fish oil are high protein ingredients in ‘feed’ for aquaculture, which is recognised as one of the fastest growing food segments. But interestingly global output of fishmeal has declined by 23% over the past decade, which has meant the supply/demand equation has seen sustained price growth. Oceana’s presentation document showed that the World Bank predicted a 90% real growth in fishmeal prices from 2010 to 2030.

Daybrook then would not only add a significant new growth leg to Oceana, but add additional diversity both in terms of product and geographic markets. Oceana currently earns its keep through three operating divisions: canned fish business Lucky Star, fish producer Blue Continent Products and its lobster, squid and French fries’ hub. Oceana also has a fourth ‘division’ in CCS Logistics, which provides refrigerated warehouse facilities.

Daybrook, on paper, looks an impressive operation producing revenue of US$114m (around R2,4bn) in financial 2014 at a fat 55% margin. The revenue split is 50% Canada/USA, 27% Europe and 22% to the Far East. The company has been consistently profitable over the long-term – save for two years when normal performance was hit be extraordinary events like Hurricane Katrina (2205) and the Deepwater Horizon oil spill (2010.)

In a recently released rights issue circular to shareholders it is argued that the acquisition would allow Daybrook Fisheries to benefit from Oceana’s procurement programmes as well as group support functions to save costs and increase efficiencies. Oceana directors argued that over the next five years an expansion of the fleet and an increase in plant capacity was planned as a result of the recent installation of innovative dryer technology. What’s more industry catch levels in Menhaden are below sustainable levels. This provides Daybrook Fisheries with the opportunity to increase its annual catch while maintaining the sustainability of the resource.

The underlying suggestion is that Oceana’s new found status as a significantly larger group with multi-country exposure will provide a platform to explore further initiatives globally. Certainly Oceana looks well capable of adding more offshore scale and early indications are that the company has identified cost savings at least US$3m (R32m) a year based on an average exchange rate of R10,55 to the dollar that can be extracted from Daybrook Fisheries within two years.

Successful cost savings are likely to drive expansion opportunities for Daybrook given the sustainability of the Menhaden fishing resource and a planned increase in processing capacity at a fairly new production plant.

Presuming Daybrook is smoothly shifted into Oceana’s corporate machinations and delivers the expected profit flows, CBN would not be surprised to see Oceana – which is increasingly looking to market Lucky star in more African countries - baiting its hooks for a few selected African fishing assets.

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