Our opinion on the current state of SEAHARVST(SHG)

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Sea Harvest (SHG) is South Africa's most popular frozen fish brand with about 38% of the market. It is controlled by Brimstone, which has a 54.92% stake. Sea Harvest catches, processes, and freezes fish for local and export consumption. They acquired the business of Viking, which began 40 years ago and now employs 1600 people with a fleet of 30 vessels operating in Cape Town, Durban, Hout Bay, Mossel Bay, and Maputo. Viking catches, processes, and sells horse mackerel, hake, pilchards, anchovy, prawns, tuna, and rock lobster. As part of this deal, they have also acquired 50% of Viking's aquaculture business, which is one of the largest in South Africa. The cost was a total of R565m, of which R315m was paid in cash and the balance through the issue of 19.2m Sea Harvest shares.

Sea Harvest announced the acquisition of the Ladismith Cheese Company for R527m. This company produces cheese, butter, and related products and signals Sea Harvest's intention to diversify away from the fishing industry. The price paid seems quite high since it is based on Ladismith's R58m after-tax profit for the year to January 2018. On 8th March 2023, the company announced that it was increasing its stake in Viking Aquaculture to 82% for R210m.

In its results for the year to 31st December 2023, the company reported revenue up 6% and headline earnings per share (HEPS) down 5%. The company's net asset value (NAV) rose 7% to 1216c per share. The company said, "The Group's performance benefited from strong demand across all markets and channels and improved pricing while its 43% hard currency exposure allowed it to benefit from the weaker rand. Performance, however, was constrained by lower volumes as a result of difficult fishing conditions, above-inflation cost increases, load shedding, and prawn prices under severe pressure globally."

In a trading statement for the six months to 30th June 2024, the company estimated that HEPS would increase by between 13% and 18%. The company said, "The South African fishing business was challenged by continued low catch rates resulting in lower sales volumes, however, this was offset by strong demand in all markets and channels resulting in firm pricing."

The Sea Harvest share is fairly volatile with reasonable volume traded. From its listing in March 2017, the share has moved mostly sideways with a downward trend since June 2022. Obviously, the Viking acquisition has changed the nature of this business substantially, but it remains subject to the weather (which affects the catch) and the regulatory environment (where quotas can be changed by the government). In our view, given the volatility, the share remains fairly fully priced. On 15th May 2024, the company announced that the acquisition of 100% of Terrasan has received approval from the Competition Tribunal.