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Flood of fishing listings head to the JSE

Two appealing IPOs, but employees must benefit.

By March, the number of fishing companies listed on the JSE will have tripled. Oceana has been the lone listing for years. Premier Fishing and Sea Harvest will make their debuts in March, with current majority owners African Equity Empowerment Investments (AEEI) and Brimstone, respectively, opting to list the assets.

Each will raise significant amounts of capital in their listing: Premier will raise R526.5 million, while Sea Harvest is looking to raise up to R1.5 billion.

Investors are enthused, and they should be: these are well-run, profitable companies with solid track records. And they’re managing this in a highly-regulated sector with strongly-defined empowerment/transformation targets.

Being listed offers a few obvious advantages: scrip to use for acquisitions, a market-determined share price – and with it, a higher/(re-)rating in valuation – and liquidity for shareholders (including, importantly, staff).

Premier

In Premier Fishing’s case, the company clearly has a target in its sights. The company states plainly in its prelisting statement that it “is currently actively pursuing the acquisition of a fishing company that will strategically fit into the structure and the company’s strategic growth plan”. Also, there are no major capital expenditure items detailed, nor is there any debt that needs to be repaid.

Sea Harvest

Brimstone says in a statement confirming Sea Harvest’s listing (and capital raising) that proceeds from the private placement will be used to repay all of its third party debt (R303 million) as well as provide the company with “the additional capital to support growth”. It states that “cash of R480 million will supplement a revolving credit facility of up to R450 million, allowing Sea Harvest to contribute R930 million of capital to growth opportunities”.  It will also use R575 million to redeem “cumulative preference shares and the loans granted by Brimstone to Sea Harvest”.

 

Oceana

Oceana ex USA (Daybrook)

I&J

Sea Harvest

Premier Fishing

Year to end

30-Sep-16

30-Sep-16

30-Jun-16

31-Dec-15

31-Aug-16

Revenue

R8.244bn

R6.313bn

R2.172bn

R1.374bn

R401.69m

Operating Profit

R1 629.49m

R961.34m

R331m

R121.65m

R65.16m

PAT

R958.29m

N/A

N/A

N/A

R52.11m

Margin

19.8%

15.2%

15.2%

8.9%

16.2%

HEPS

703.4c

N/A

N/A

N/A

37c*

Price

11600c

N/A

N/A

N/A

450c

P/E

16.5x

N/A

N/A

N/A

12.2x

*Heps reported for FY16. On a forward basis – with Heps forecast at 33c – the PE will rise to 13.6 (at the offer price).

Consolidation

Given that, between them, Premier and Sea Harvest will have a R2 billion war chest, one can guarantee that the industry will see some broad consolidation in the near term. There aren’t too many fishing companies of scale around, but a glance at fishing rights allocations by the Department of Agriculture, Forestry and Fisheries, as well as members of the South African Deep-Sea Trawling Industry Association, offers some idea of potential targets (outside of listed entities). The larger companies, Oceana and Sea Harvest, have also actively been pursuing acquisitions offshore in the US and Australia, respectively.

Creating wealth for black employees

Any listing, if approached in the correct way, would be an excellent way of creating wealth for (predominantly, in other words >90%) black employees. In terms of ownership and access to fishing rights, the industry has transformed significantly over the last 25 years.

Oceana, of course, is the gold standard: its highly successful Empowerment Trust currently owns 10.1% of the group. Set up a decade ago, it has 2 501 eligible employee beneficiaries and the trust disbursed close on R300 million in 2014. The payout average (after tax) per employee worked out to R100 000. The staff lock-in period has recently been extended to 2021.

Management and staff of Sea Harvest own 15% of the company (black-owned and controlled investment holding company Brimstone owns the remaining 85%, which will drop to 52% post listing). Brimstone notes in its Sens announcement on the proposed listing that “Sea Harvest is one of the first black industrial companies to be listed on the JSE, a strong confirmation that transformation works in South Africa”.

Premier has no other shareholders, aside from parent AEEI. In its prelisting statement, it indicated that part of the rationale for listing is to “give employees and members of communities in which it operates… an opportunity to acquire an equity stake in the company”. One would expect Premier to set up a staff/community trust in the near term.

While these four large fishing companies don’t employee hundreds of thousands of people, between them, they have in excess of 15 000 employees. Any wealth that can be created for them, or meaningful change in their circumstances that can come from a listing, must be celebrated. This should be the primary focus of any listing of these assets and it is crucial that employees participate in the value created. Given its major shareholder and its history, it is surprising that Premier Fishing hasn’t detailed its plans here.

What of I&J?

Given the frenetic activity in the sector, the market will quite obviously be looking at I&J, owned by AVI. It has been a solid performer for AVI, but if the group can unlock value for shareholders in a listing (as is the case for both AEEI with Premier and Brimstone with Sea Harvest), it should surely consider this. (I&J has a 25% direct BEE shareholding, of which 5% is held by black staff.) One would imagine that AVI will wait to see how Premier Fishing and – more importantly – Sea Harvest are received by the market. Perhaps that will force its hand?

* Hilton Tarrant works at immedia. He can still be contacted at hilton@moneyweb.co.za.

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