Clean Seas v Kingfish Company Amtrying to get my head around why...

Clean Seas v Kingfish Company

Amtrying to get my head around why the market cap is so low absolute and relativeto the Kingfish Company in Norway. They are a nascent on land farmer of theyellow tail kingfisher species. They product circa 250 tonnes today with decentgrowth plans. We produce (if you annualise q1) 4K tonnes yet our market cap isa 1/3 of there’s. Another way of putting it is the Norwegians pay 22* 2022sales which is 10* us or 43* inventory in the water compared to CleanSeas

Whythe differentials;

1)Maybe ESG. There is a perception that on shore fish farming is better for theenvironment but that misses the point that the fish tanks need to be heated tocreate the correct temperature and tidal conditions and importantly it missesthe progress that Clean Seas has made to “close” the loop re fish poop -i.e its actually net zero by it’s own initiatives - using sea wood.

Thecompany clearly should make more of this but see the link below. I hope theydo. Important

https://www.cleanseas.com.au/sustainability/health-welfare-of-our-kingfish/

2)Trading / Production

It’sworth spending time looking at the two presentations - compare and contrast andthen digest the growth plans to 10k tonnes in the release this week.

https://wcsecure.weblink.com.au/pdf/CSS/02422122.pdf

https://9deca9f9-66ee-4a3a-b034-56efb347a894.filesusr.com/ugd/bc044d_3d41286766964a34a6f60d82a89568e5.pdf

Ithink Clean Seas will ramp further - Why? The strategic relationship withHosfeth brings US channel partners into the frozen and sensory fresh productcategories - think Sam’s Club. Look at the amount of Norwegian Salomon importedinto the US - scale of the market and what a small % of that would / could meanto Clean Seas volumes.

I amnot sure the market completely understands the significance of current trading.It’s clear net cash is ahead. Better volumes and better prices in this lastquarter. Hugely impressive.

Thereare lots of moving parts - fresh over frozen, retail over wholesale - thatchanges average selling prices but the new channels do 3 things 1) it givesoptionality in that the company can sell fish at different points of theirrespective growth cycle i.e. fish sold to the frozen channel are smaller andsold within 18 months of their growth cycle so have a lower selling price BUTimportantly have a lower cost associated - so give similar margins I wouldthink 2) and importantly by doing so you turn your “capital” (fish in thewater) over faster which means your return on capital and free cash flowimproves 3) it de-risks the business in that if one channel is slow you canpivot to another etc. All 3 points massively accretive to the multiple of thebusiness?

Speedof scale of up effects net cash as initially you absorb working capital but 1)net cash has surely to be ahead of where the board and brokers modelled at thelast raise 2) the number of fish in the water each year does not correspondnecessary to production of that number in year 2 or 3 given the point above rechannels and return on capital but its clear unit costs fall fast with scale.

Conclusion

Seemsodd that the Norwegian pay so much for the future (ramp in production) butinvestors ignore the “today” - let alone the future at Clean Seas. From thepresentations it would seem that the ramp is similar at both companies -explicitly to 10k at both and perhaps more implicitly at Clean Seas - check outwho Hosfeth are!

Ifyou piece together the presentations from the raise, end August and then midSept Bell Potter conference it would seem the implicit guidance ofprofitability at 10k tonnes is circa $40m ebitda, which would give free cashflow of $35m. I think. The net cash at that point I am less sure on but I thinkyou probably pencil in $25m so the year 3 free cash flow yield to EV is circa50%.

Am Long. My maths / thoughts. Am fallible.