Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Shark harvest key to Sea Dragon's future, says Edison

Shark harvest key to Sea Dragon's future, says Edison

By Pattrick Smellie

Aug. 7 (BusinessDesk) - The success of a newly signed contract with a Portuguese fishing vessel to catch sharks in the south-west Pacific Ocean is the most important risk to the plans by Nelson-based fish oils processor Sea Dragon, says Edison International research.

Compiled at the company's request, Edison puts a fair value of 2.7 cents per share on the company, compared with 1.8 cents in trading on the NZX today, an increase of 5.9 percent since the release of the research note from Edison, which undertakes independent analysis paid for by the target company.

Sea Dragon listed in 2012 and has raised $6.1 million from shareholders to build new processing plant.

Edison said it could justify a valuation of 5.4 cents per share on an unadjusted discounted cashflow basis, but that it had set an "execution discount of 50 percent to 2.7 cents per share to take account of the risks around raw material deliveries, particularly for deep sea shark liver oil (DSSLO)", which is used to produce squalene, a raw material in cosmetics and dietary supplements.

"If the company secures delivery of the raw materials and successfully starts delivering on the contracts, then the execution discount will reduce and our valuation will rise accordingly," said Edison analysts Victoria Buxton and Neil Shah.

They note "Sea Dragon has a history of under delivery on projections due in no small part to the unpredictable nature of raw material supplies."

However, new contracts signed for the use of a vessel owned by Portuguese fishing company Pescarias Cayon & Garcia to target sharks in sustainable fisheries specifically to meet Sea Dragon's needs "should eliminate most of this risk, although the fish still have to be caught and deliveries made to the company" over the next eight months. In the past, Sea Dragon has sourced shark livers from by-catch from other fisheries.

Renewal of the contract, the first time the company has contracted for a material quantity of shark from a supplier, was expected if the Pescarias Cayon vessel succeeded in catching the contracted volumes. Deliveries are scheduled next month, and then in December and March, with some 50 percent of projected production pre-sold through two major contracts. A risk-reducing feature of the fishing vessel contract is that payments will be tied to the quantities of squalene produced, rather than total tonnage of fish delivered.

Assuming projected volumes are achieved and prices remain stable or rising, Edison expects the company to move from losses in the 2015 financial year to a pre-tax profit of $5.6 million, compared with a normalised loss in the 2014 financial year of $1.9 million. This also assumes the new processing facility in Nelson goes into production from the start of the 2016 financial year.

Production costs per kilo are expected to fall by more than 80 percent from $3.95 in the 2014 financial year to around 74 cents in 2016, as the new plant comes on stream.

Edison also notes the company is exposed to exchange rate movements, with a 3 US cent movement in the New Zealand dollar exchange rate having a 2.6 percent impact on revenues, but an impact on net earnings of 10.3 percent.

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

ICT Innovation: Six NZ Finalists In World Summit Awards

The awards are a global showcase of 40 projects, across eight categories, with a special emphasis on those which show the benefits of information and communication technology for the development of communities. New Zealand has finalists in six of the eight categories. More>>

ALSO:

Final Frontier: Rocket Lab And NASA Sign Commercial Space Launch Agreement

Rocket Lab has signed a Commercial Space Launch Act Agreement with the National Aeronautics and Space Administration (NASA). The agreement enables Rocket Lab to use NASA resources - including personnel, facilities and equipment - for launch and reentry efforts. More>>

ALSO:

Scoop Business: Wheeler Downplays Scope For ‘Large’ Rates Fall

Reserve Bank governor Graeme Wheeler says some market commentators are predicting further declines in interest rates that would only make sense for an economy in recession, although some easing is likely to be needed to maintain New Zealand’s economic growth. More>>

ALSO:

Ruataniwha Dam: Consent Conditions Could Mean Reduced Intensity

Legal advice sought by the Hawke’s Bay Regional Council on the Ruataniwha Dam consent conditions has confirmed that farmers who sign up to take water from the dam could be required to reduce the intensity of their farming operation to meet the catchment’s strict nitrogen limit. More>>

Health And Safety: Bill Now Sees Rules Relaxed For Small Businesses

Health and safety law reform sparked by the Pike River coalmine disaster has been reported back from the industrial relations select committee with weakened requirements on small businesses to appoint health and safety representatives and committees. More>>

ALSO:

Bearing Fruit: Annual Fruit Exports Hit $2 Billion For First Time

The value of fruit exported rose 20 percent (up $330 million) for the June 2015 year when compared with the year ended June 2014. Both higher prices and a greater quantity of exports (up 9.0 percent) contributed to the overall rise. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news