Our opinion on the current state of OCEANA(OCE)

Oceana Group, Southern Africa’s largest fishing business, holds a prominent position in the industry with a significant presence not only locally but also in the United States through its subsidiary, Daybrook Fishing. The company's broad product range includes canned fish, fish meal, fish oil, hake, mackerel, lobster, and squid. Oceana is dual-listed on the Johannesburg Stock Exchange (JSE) and the Namibian Stock Exchange, reflecting its substantial market reach.

The business is heavily regulated, subject to government-issued quotas, which can fluctuate due to policies such as Black economic empowerment. Additionally, operations are significantly impacted by weather conditions, which can affect catch sizes and operational efficiency.

For the six months ending 31st March 2023, Oceana reported impressive financial results, with revenue up 48% and headline earnings per share (HEPS) increasing by 123%. The company attributed this strong performance to its diversified portfolio across different species, geographies, and currencies. High initial inventory levels of canned fish, fishmeal, and fish oil, coupled with robust demand for canned fish and favorable pricing for fish oil, helped the company navigate challenging operating conditions.

In its trading update for the 11 months up to 27th August 2023, Oceana noted an 8% increase in Lucky Star canned fish sales volumes, though there was a 5% decrease in US landings of fish. Horse mackerel sales remained stable. Looking ahead to the six months ending 31st March 2024, Oceana estimated that HEPS would rise by 89% to 99%. This forecasted growth is primarily driven by higher sales volumes of fishmeal and fish oil by Daybrook, along with strong pricing for fish oil in US dollars, and enhanced canned food sales from the Lucky Star brand.

The company's share price has been on an upward trajectory since July 2022, currently trading at an earnings multiple (P/E) of around 9.62. This valuation suggests that Oceana is well-regarded as a solid blue-chip stock, although its exposure to environmental factors and regulatory changes introduces a degree of volatility.

Oceana's strategic direction includes exploring opportunities in aquaculture. However, the company faces constraints due to competition regulations within South Africa. This limitation has prompted considerations for potential acquisitions outside of South Africa to bypass these restrictions and expand its operational footprint.

Noteworthy corporate developments include the resignation of PWC as its external auditor in May 2022 and the acquisition of a secondary listing on the A2X exchange as of 27th March 2023. These actions reflect ongoing adjustments in its corporate governance and market engagement strategies.

In summary, Oceana Group presents as a robust investment with potential for significant growth, underscored by a strong operational base and strategic market positioning. However, potential investors should be mindful of the inherent risks due to regulatory, environmental, and market volatility factors.