why sp so low, page-2

This was in The Australian 5/08/08 - it sums up the problems. I have hated this stock since buying it at $2.20 earlier this year. The long term picture is still good but there are plenty of hurdles to clear before the share holders see any benefit.


SOMETHING smells fishy at Clean Seas Tuna.

The specialist aquaculture company, which farms kingfish and tuna in South Australia, surprised shareholders last week with a profit downgrade that came totally out of the blue.

Five weeks ago, after year-end, Clean Seas announced that the recent kingfish cultivation season had been the most successful yet, due to improved feeding techniques and better infrastructure.

The fish had grown bigger faster, meaning they could be sold earlier.

With fish worth tens of millions of dollars in the water, the company appeared confident of a solid profit result, previously anticipated to be around $2 million. The company also said it had no plans to raise more capital.

Three weeks later, the company dropped a bombshell. Instead of a profit, it now anticipated a loss of around $1 million.

But it was the reason given for the sudden reversal of fortune that infuriated shareholders.

The company pinned the loss on less than budgeted yellowtail kingfish growth for 2008.

This is plainly unacceptable.

First, the announcement appears to be a complete contradiction to previous statements made by the company.

Second, the main cause of the loss occurred months ago, yet in a number of shareholder updates on other aspects of the business, nothing was said until well after year-end.

Finally, a secondary reason for the downgrade was the recognition that average selling prices had declined due to the introduction of a frozen product range.

Again, this ought to have been disclosed well before the shock profit downgrade.

Then, last week, the company announced that it was unlikely to have positive cash flows until it had a stable number of fish in the water.

As it has embarked on a massive expansion strategy, fish inventory is expected to swell for another 18 months at least.

In order to fund the expansion, the company has arranged a debt facility which, if fully drawn, could place Clean Seas in an uncomfortable debt-servicing position.

This is a case of an interesting company with a great story that now has a massive question mark hanging over the long-term viability of its model.

It has been strongly supported by retail shareholders who have been enticed to invest in a South Australian innovator. It has a potentially huge competitive advantage because the fish it breeds are not subject to fisheries restrictions such as daily catch limits, and there is constant demand for these breeds originating in Asia.

But can it turn a dollar?

One thing it will need to be successful is a group of loyal shareholders who are willing to go years without dividends and, if necessary, inject more capital into the company in order to ensure it does not become overly leveraged.

Clean Seas trumpets its bio-sustainable credentials and boasts of bringing some tuna varieties back from the brink of extinction.

But these positive messages will wear thin on investors unless the company gets the basics of corporate governance right.