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.


© Scoop Media

Business Headlines | Sci-Tech Headlines


Postnatal Depression: 'The Thief That Steals Motherhood' - Alison McCulloch

Post-natal depression is a sly and cruel illness, described by one expert as ‘the thief that steals motherhood’, it creeps up on its victims, hiding behind the stress and exhaustion of being a new parent, catching many women unaware and unprepared. More>>


DIY: Kiwi Ingenuity And Masking Tape Saves Chick

Kiwi ingenuity and masking tape has saved a Kiwi chick after its egg was badly damaged endangering the chick's life. The egg was delivered to Kiwi Encounter at Rainbow Springs in Rotorua 14 days ago by a DOC worker with a large hole in its shell and against all odds has just successfully hatched. More>>


Trade: Key To Lead Mission To India; ASEAN FTA Review Announced

Prime Minister John Key will lead a trade delegation to India next week, saying the pursuit of a free trade agreement with the protectionist giant is "the primary reason we're going" but playing down the likelihood of early progress. More>>



MYOB: Digital Signatures Go Live

From today, Inland Revenue will begin accepting “digital signatures”, saving businesses and their accountants a huge amount of administration time and further reducing the need for pen and paper in the workplace. More>>

Oil Searches: Norway's Statoil Quits Reinga Basin

Statoil, the Norwegian state-owned oil company, has given up oil and gas exploration in Northland's Reinga Basin, saying the probably of a find was 'too low'. More>>


Modern Living: Auckland Development Blowouts Reminiscent Of Run Up To GFC

The collapse of property developments in Auckland is "almost groundhog day" to the run-up of the global financial crisis in 2007/2008 as banks refuse to fund projects due to blowouts in construction and labour costs, says John Kensington, the author of KPMG's Financial Institutions Performance Survey. More>>


Health: New Zealand's First ‘No Sugary Drinks’ Logo Unveiled

New Zealand’s first “no sugary drinks logo” has been unveiled at an event in Wellington... It will empower communities around New Zealand to lift their health and wellbeing and send a clear message about the damage caused by too much sugar in our diets. More>>


Get More From Scoop

Search Scoop  
Powered by Vodafone
NZ independent news