These aquaculture stocks are underwater but could be a good catch
Food & Agriculture
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The Australian aquaculture industry is aiming to double its revenue to $2 billion in ten years under a national strategy released in September.
If the strategy is successful, investors might look back at 2018 as a good time to invest in aquaculture — especially as many related ASX stocks have sunk in recent months.
Only two of nine ASX-listed aquaculture stocks in our table below have swum ahead in the last six months — reflecting the many challanges the sectors faces from technology failures to disease outbreaks and even jail breaks.
“Potential upside is there, however nature can conspire to wreck the best aquaculture operations,” says analyst Chris Robertson.
“Storms can damage holding pens, disease can damage fish stocks.”
Still, demand seems certain since the world will need a 75 per cent increase in global food production by 2050 compared with 2007 levels, according to the National Aquaculture Strategy.
The aquaculture opportunity
Globally, food sourced from aquaculture (inland and marine) has grown from 7 per cent of total seafood consumed in 1971 to 44 per cent in 2014, the report says.
Aquaculture is expected to account for more than half the world’s fish production by 2021.
Right now Australia has less than 1 per cent of the $US160 billion ($208 billion) global market.
But federal and State governments aim to change that.
“With wild-catch fishery production plateauing, there exists an exciting opportunity for aquaculture to bridge the gap between supply and demand,” federal assistant agriculture minister Senator Anne Ruston said in the September report.
Under the strategy, Aussie aquaculture players are likely to benefit from a reduce regulatory burden, improved market access and strengthened biosecurity.
And as infant formula exporters have found, Australia’s reputation for safe, high-quality food gives our producers a marketing advantage.
Here’s a basket of ASX-listed aquaculture stocks that could benefit:
Both are aiming to tap the Chinese market as it continues to grow its influence.
China is expected to account for 37 per cent of total fish production and 38 per cent of total fish consumption by 2030.
Australia’s biggest prawn farmer Seafarms (ASX:SFG) is upping its production with the rollout of its sea Sea Dragon shrimp project in the Northern Territory.
Known for its premium Crystal Bay prawns, the shrimp producer is developing a large-scale land-based project which aims to produce reliable volumes all year round, with potential to net $3 billion in export revenue.
Huon Aquaculture (ASX:HUO) has srtruggled with unseasonal weather and fish escaping its trial ponds last year — though harvest tonnage was up 35 per cent in the December half.
The company confirmed that $1 million worth of Kingfish made a jailbreak during a period of severe weather.
“The cause of the loss was not due to the design or integrity of the fortress pens but operational shortcomings which have since been addressed.
“The loss has delayed plans for the first harvest until late March but otherwise the trial is continuing as planned.”
Meanwhile newly listed Angel Seafood (ASX:AS1) has been dealing with the Pacific Oyster Mortality Syndrome (POMS) scare — tbough not in its growing areas.
Murray Cod Australia (ASX:MCA) blamed the deaths of 8000 fish on faulty aeration systems in its ponds.
New Zealand King Salmon (ASX:NZK) reported higher profits in the December half but warned of weaker second-half results due to an “extraordinarily hot summer” that cut survival rates at its fish farms.
It is proposing a controversial plan to relocate its stocks of fish.
Meanwhile big fish Tassal (ASX:TGR) is reaping better earnings through patience — letting fish grow larger to gain a greater premium.
The same strategy is dfollowed at Clean Seas (ASX:CSS) which farms Hiramasa-branded yellow tail kingfish — hauling in $20.4 million in sales revenue in the last half.
Marettaram’s (ASX:MTM) annual reports show that although prawn catch volumes were about 10 per cent higher than the same time year, the average size of prawns caught in the 2017 season was significantly smaller to that of 2016. That resulted in a lower average realised price for prawns caught in the 2017 season.
Diversify to reduce risk
Analyst Chris Robinson says aquaculture investors should reduce risk by “looking to diversify their aquaculture exposures both geographically such as buy a mix of New Zealand, TAS, QLD or SA companies and also different species e.g. king fish , salmon, oysters etc.”
“This reduces the impact of any one event whether it be storms or disease on portfolio returns.”
“This also has a secondary benefit of diversifying revenue streams as revenue growth across the aquaculture market can vary”.
Nine ASX-listed aquaculture stocks: