Sea Harvest | A good catch
Sea Harvest (SHG) grew interim headline earnings by 9% yoy (excluding once-offs). Following the listing, total shares in issue rose 23%, causing a 14% yoy decline of HEPS (excluding once-offs). Cape Hake catch rates and sizes are improving. SHG earnings will benefit from higher volumes. Larger fish are conducive to premium priced export markets. SHG has a high ratio of freezer vessels in its fleet which produce products for the export markets. We therefore expect SHG margins to rise as the company increases its export sales mix. The company is investing into factory efficiencies, to improve yields and margins. SHG is past its peak fishing capex cycle. Thus, we forecast a significant increase in free cash flow over the next three years (FCF yield to rise from c.2% currently to c.13% in FY '21). ROIC should rise from 13% to c.18% in FY '21.Sea Harvest Group Limited, formerly Sea Harvest Holdings Proprietary Limited, is engaged in fishing of Cape hake and Shark Bay prawns; processing of the catch into frozen and chilled seafood, and the marketing of these products, locally and internationally in a seafood market. It operates in two segments: South African Operations and International Operations. The South African Segment comprises fishing operations within South Africa relating to fishing of Cape hake and by-catch species, the processing of the catch into frozen and chilled seafood products and the marketing and distribution of these products locally and across 22 international markets. The International Segment comprises the operations of Mareterram. The main operations of Mareterram comprises the trawling, processing, marketing and distribution of Shark Bay prawns, scallops and crabs, and a foodservice sales and distribution business, which distributes a basket of products into the Australian food service market.
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