Clean Seas v Kingfish Company
Am trying to get my head around why the market cap is so low absolute and relative to the Kingfish Company, who are quoted in Norway. They are a nascent on land farmer of the yellow tail kingfisher species. They product circa 250 tonnes today with decent growth plans. We produce (if you annualise q1) 4K tonnes yet our market cap is a 1/3 of there’s. Another way of putting it is the Norwegians pay 22* 2022sales which is 13.5 * us or 47* inventory in the water compared to Clean Seas
Why the differential?
1)Maybe ESG. There is a perception that on shore fish farming is better for the environment but that misses the point that the fish tanks need to be heated to create the correct temperature and tidal conditions and importantly it misses the 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.
The company clearly should make more of this but see the link below. I hope they do. Important
https://www.cleanseas.com.au/sustainability/health-welfare-of-our-kingfish/
2)Trading / Production
It’s worth spending time looking at the two presentations - compare and contrast and then digest the growth plans to 10k tonnes in the release this week.
https://wcsecure.weblink.com.au/pdf/CSS/02422122.pdf
I think Clean Seas will ramp further - Why? The strategic relationship with Hosfeth brings US channel partners into the frozen and sensory fresh product categories - think Sam’s Club. Look at the amount of Norwegian Salomon imported into the US - scale of the market and what a small % of that would / could mean to Clean Seas volumes.
I am not sure the market completely understands the significance of current trading. It’s clear net cash is ahead. Better volumes and better prices in this last quarter. Hugely impressive.
There are lots of moving parts - fresh over frozen, retail over wholesale - that changes average selling prices but the new channels do 3 things 1) it gives optionality in that the company can sell fish at different points of their respective growth cycle i.e. fish sold to the frozen channel are smaller and sold within 18 months of their growth cycle so have a lower selling price BUT importantly have a lower cost associated - so give similar margins I would think 2) and importantly by doing so you turn your “capital” (fish in the water) over faster which means your return on capital and free cash flow improves 3) it de-risks the business in that if one channel is slow you can pivot to another etc. All 3 points are surely massively accretive to the multiple of the business?
Speed of 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 the last raise 2) the number of fish in the water each year does not correspond necessary to production of that number in year 2 or 3 given the point above re channels and return on capital but its clear unit costs fall fast with scale.
Conclusion
Seems "odd" that the Norwegian pay so much for the future (ramp in production) but investors ignore the “today” - let alone the future - at Clean Seas. From the presentations it would seem that the ramp is similar at both companies -explicitly to 10k at both and perhaps more implicitly beyond at Clean Seas - check out who Hosfeth are!
If you piece together the presentations from the raise, end August and then mid Sept Bell Potter conference it would seem the implicit guidance of profitability at 10k tonnes is circa $40m ebitda, which would give free cashflow of $35m. I think this is an annualised 2024 number. The net cash at that point I am less sure on but I think you probably pencil in as a minimum $25m (very fast payback) so the year 3 free cash flow yield to EV is circa 50%.
Am Long. My maths / thoughts. Am fallible.
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