Oceana on course to become big fish after R4.6bn US acquisition

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The fishing conglomerate, which has Tiger Brands as an anchor shareholder, will acquire 100% of Louisiana-based fish-meal and -oil specialist Daybrook Fisheries.

Sources say fish meal and fish oil - used mainly in aquaculture and animal feeds - could be a potential sweet spot for Oceana as global output has slowed, causing an increase in prices.

Oceana cited a World Bank report that predicted 90% "real" growth in fish-meal prices from 2010 to 2030.

If the deal is approved Oceana will become the sixth-biggest fishing company in the world with annual ebitda (earnings before interest, tax, depreciation and amortisation) close to R1.7bn from turnover of more than R6bn.

Rezco portfolio manager Rob Spanjaard said Daybrook was a significant deal for Oceana, representing about a quarter of the enlarged business. "It looks a pretty nice deal from what we can see. But they've only given some financial detail, so there's very little visibility in terms of historic profit performance."

Speaking at an investment presentation, Oceana CEO Francois Kuttel said the company had already arranged financing for the deal but would be embarking on a rights issue in late August.

Kuttel said Oceana harboured ambitions of becoming a global fishing company, and that the Daybrook deal would mean the company generated 41% of revenues outside SA. Currently 75% of turnover is South African-based.

He stressed that the trading environment in SA had necessitated Oceana looking offshore for new growth opportunities. "It's really a small pond and we are compromised by our size, which makes it difficult for us to do deals in SA," Kuttel said.

Oceana is comfortably the biggest fishing company in SA in terms of revenue and catch diversity. But, in truth, the company has leaned heavily on its Lucky Star canned fish brand and horse mackerel in the last few years.

A fishing industry source who asked not to be named said the purchase of Daybrook was a daunting deal for Oceana.

A major benefit is the much needed diversification it brings to Oceana's portfolio. With Daybrook on board the revenue contribution from Lucky Star drops to 43% (from 56%), fish meal increases to 30% (from 10%) and horse mackerel shifts down to 20% (from 26%).

Investors canvassed after the presentations were mostly positive about the Daybrook deal, highlighting the fat margins and potential for expansion. One, however, made a pointed enquiry as to why the owners of Daybrook opted to sell to Oceana.

Kuttel said the owners were no longer young and there were no succession plans in place in terms of ownership.

On paper, the deal looks well priced for Oceana with Kuttel disclosing that Daybrook was bought on an implied earnings multiple of 8.65 times.

Oceana financial director Imraan Soomra said Daybrook generated revenues of $114m last year at a gross profit margin of 55%. Ebitda came in at $48m. Soomra said the gross and ebitda margins were consistent, although a graph did show a spike to 62% and 42% respectively in 2012.

Source: Business Day via I-Net Bridge