MARC HASENFUSS: A life on the Oceana wave

At my delicate age I increasingly fixate on two things — building a sustainable income stream and eating healthily. OK, I probably also watch too many padel tips on TikTok — but I’m sure that will abate as I inevitably resign myself to a mediocre player rating.

On the income stream — and I would welcome criticism and suggestions here — I have not completely yielded to all-out yield ... yet. So it’s the defensive staples Remgro and Reinet with the Satrix Resi 10 and Satrix JSE Global Equity; Merchant West’s Dividend Equity unit trust; Primary Health Properties; Wheaton Precious Metals; and holdings in US-listed monthly dividend payers Gladstone Land, Stag Industrial, Main Street Capital Corp and Realty Income.

I’m not sure about clutching onto Rainbow Chicken after the 20c a share dividend is paid; I might swap into Remgro or back into Lighthouse Properties (no Spain, no gain!), where I admit to some unconvincing dividend farming. Merafe (see Investors Monthly this week for Jeandre Pike’s deep dive) looks intriguing, too. For excitement I have Goldrush, Quantum Foods and Randgold & Exploration as well as a smattering of cryptocoins (don’t judge me).

There is a share, however, that bobs enticingly on the horizon — one that not only feeds my craving for a healthy constitution, but might also nourish my future income needs. That would be Oceana, the diversified fishing powerhouse — which is drifting close to its 12-month low of R50.50. In fact, Oceana is not nautical miles away from its five-year low of R45, to which it dived in mid-2022.

There is a lot of push and pull at Oceana that can swing the tides of investor sentiment. My selfish hope is that the share will drift below R50 — but insultingly modest multiples don’t easily get slapped on a business with a solid, eight-decade record as a listed company. Oceana, of course, is moored firmly to Lucky Star Foods, which produces the eponymous canned pilchard that is a staple in many households both in South Africa and increasingly in the rest of Africa.

But Oceana now has to navigate a tricky cash flow current in the form of its US fishmeal and fish oil operation, Daybrook. No-one will dispute that fishmeal and fish oil — used in pet food and aquaculture — are in demand. The problem is that supply, and thus prices, can vary wildly from year to year, and with them Daybrook’s profits. Oceana’s early alert trading update — covering the year to end-September — succinctly reflects the difficult duality in the operational profile.

Lucky Star’s volumes edged up 1% on the back of firmer export demand. But margins were fleshed out thanks to increased local cannery production volumes coupled with better production yields from “good-sized and high-quality” frozen fish and efficiency gains from the recent factory upgrades. Reassuring stuff.

In the wild waters off Louisiana, Daybrook’s fishing season kicked off in mid-April and landings to the end of week 20 were an encouraging 16% higher and smack dab in line with the five-year average historic catch. The 28-week catching season closes at the end of next month. But fish oil yields were slightly lower at 11.2%, with Oceana indicating that an 11% increase in sales volumes (improved landings and higher opening inventory levels) did not offset lower fishmeal prices and an unceremonious halving of fish oil prices. Consequently shareholders were offered the dreaded declaration: “Daybrook’s results were considerably lower than the prior period’s record performance.”

Daybrook was hailed as a major hard currency catch for Oceana when the deal was signed 10 years ago ... Obviously enthusiasm has ebbed markedly

The bottom line for Oceana is a 40% slump in earnings to about 367c a share — a p:e of about 14. That’s no longer modest, especially if Daybrook profits are not likely to be significantly buoyed in 2026 ... or 2027. Daybrook, one should remember, was hailed as a major hard currency catch for Oceana when the deal was signed 10 years ago, and some punters even speculated the deal was a first step in building out a global fishing enterprise. Obviously enthusiasm has ebbed markedly.

Should Oceana sell out Daybrook? I think so. But I doubt there will be a long queue of buyers to ensure a graceful exit from this pesky asset. So the bumpy earnings ride will continue, which is just perfect for those investors with impeccable timing on the waves.

One thing Oceana can feel better about is that the group never took a plunge in aquaculture — specifically abalone farming, which was the enterprise du jour about eight years ago. Sea Harvest, AVI’s fishing subsidiary I&J and unlisted public company Abagold are all battling for buoyancy as the tide is still out in terms of international demand for this alleged delicacy. I tried farmed abalone once — and can only describe it as tedious and tasteless. Perhaps I did not have an appetite after flying sideways in a helicopter into a strong headwind all the way from Cape Town to Gansbaai … hovering over dark shapes that looked ominously like great white sharks.

The latest results from both AVI and Sea Harvest show abalone operations in the red, and I look forward to seeing if Abagold — which had a R16m interim profit — can finish its year to end-June above the waterline. AVI’s investor presentation reminds us just how profitable abalone was … and hopefully still can be if market appetite recovers. I&J’s abalone venture did R123m of profit in 2022. I suppose if there were ever a good time to push for consolidation in the broader aquaculture sector …