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Fishing

for value

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David Lerche

Senior Investment Analyst

The JSE’s food producer sector is about to become more interesting, with two new listings scheduled in the fishing space – Premier Foods & Fishing and Sea Harvest. Both groups are emerging from black economic empowerment (BEE) stables where they were constrained for capital – and plan to use new capital to grow rapidly.

Premier Foods & Fishing’s business is mostly deep-water crayfish and abalone farming, while Sea Harvest primarily sells hake. Both groups derive the majority of their revenues from exports. Most importantly, as a result of limited resources, they have pricing power.

With the global population growing and people becoming wealthier, the demand for all protein sources is growing. For seafood, this is augmented by a trend towards healthier, lower-fat protein. Unlike farmed animals, where supply can grow to meet demand, wild-caught seafood is already at maximum production globally, which means prices must rise to balance supply and demand.

Government quotas are required to keep fisheries sustainable, but they also create high barriers to entry. These factors combine to create an attractive environment for seafood businesses, which can then take advantage of advances in technology to improve efficiencies.

The price of fish is likely to increase, so rather than complaining about this at the local retailer, investors could take advantage of the situation by investing in the industry. Premier Foods & Fishing and Sea Harvest have yet to be listed, but the IPO valuations are reasonably attractive and Sanlam Private Wealth will therefore consider participating in these listings where appropriate for our clients.

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