SFG seafarms group limited

Post-NSK what's going on & valuation

  1. 709 Posts.
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    From media statements, investor days, reports to the ASX and so on, this is what we know:
    1. Phase 1 is 1020 hectares of ponds
    2. The revenue from phase 1 is going to pay for the rest of the build
    3. Full build-out is 10,000 hectares of ponds and is expected to cost a total of $2bln
    4. Phase 1 is expected to cost about 15% of the entire project ($300mln)
    5. The company intends to hold about 70% of the completed project
    6. Full build-out will produce about $700mln EBITA each year (about $490mln attributable to SFG - Bell Potter claims that the complete EBITA of PSD will be more than $1bln per year)
    7. Therefore the company will get about $490mln EBITA of the completed project
    8. Today there is about 1,400 million shares outstanding, about 130 million options outstanding
    9. The off-take partners/investors are expected to buy about 30% of the project itself - with the money being used to build the project
    10. NSK (subject to Foreign Investment Review Board approval) has bought about 247 million shares and 30 million options for $25 million
    11. The NSK deal requires PSD to sell off CO2A - meaning that the prawn business is all we have
    12. The company intends for PSD phase 1 to complete by 2020/2021

    So now it's time to do some scenario analysis and see how we go.

    Column 1 Column 2 Column 3 Column 4
    1   Optimistic Likely Conservative
    2 Completed PSD EBITA (projected) $700mln $600mln $500mln
    3 Optimistic PE 12:1 $8.4bln $7.2bln $6bln
    4 Realistic PE 8:1 $5.6bln $4.8bln $4bln
    5 Pessimistic PE 4:1 $2.8bln $2.4bln $2bln

    For my purposes, I've assumed that the company's revenue projections for PSD are optimistic. I've found a range of PE for Australian agribusinesses.  This gives us an enterprise value of $2bln to $8.4bln for project sea dragon.

    The company is intending to own 70% of PSD going forward.  But I'm not so sure, so let's assume that PSD is the company's only asset and what this would mean for SFG's value going forward:

    Column 1 Column 2 Column 3 Column 4
    1   70% stake 60% stake 50% stake
    2 Optimistic Optimistic $5.88bln $5bln $4.2bln
    3 Realistic Likely $3.4bln $2.9bln $2.4bln
    4 Pessimistic Conservative $1.4bln $1.2bln $1bln

    This would value SFG between $1bln and $6bln.  If this is accurate, then we have a long-term share value of 50 cents, and $2.94.  On account of my own financial circumstances, I'd need to start "risking off" in phases around $0.75

    If completed, I believe we're likely to see SFG worth as a company around $4bln when PSD is completed - I have nothing to base that on, but a bunch of comparisons.  

    Points of concern:
    • FIRB approval for the NSK investment
    • Divestment of CO2A
    • "Construction" announcement still hasn't been made
    • Building can only occur in dry season
    • Dry Season runs from April to November

    This is what I would expect to happen:
    1. Within the next 60 days FIRB grants approval
    2. 30 days after approval, SFG will get payment from NSK
    3. "Construction" starts in September - but they will be basic site-works things - powerlines and such
    4. A bunch of funding is found over the next year, construction proper happens in the dry season of 2019 and 2020 (April to November)
    5. Prawns grow in 2020-2021
    6. There is some kind of issue with yield in 2021 (guess - but something always goes wrong somewhere)
    7. Phase 2 starts circa 2025.

    Obviously the further along this list we get, the deeper into speculation we go.

    Remember - this post is more about me getting my thoughts straight than giving anyone advice.  DYOR and good luck.
 
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Change
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Mkt cap ! $9.673M
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