At Northstar Asset Management we seek to invest in companies that operate in structurally sound industries, which enjoy competitive advantages within those industries, where the management teams act in the interests of shareholders and, that behave in a socially sustainable fashion. It is our contention that Oceana ticks these boxes.
Global fish consumption is rising
Oceana is benefiting from two global fishing industry trends.
Figure 10. Global Fish consumption per capita. Source: Food & Agriculture Organization of the United Nations. March 2019. Note: Excludes aquatic mammals, crocodiles, alligators, seaweeds, & aquatic plants
The first is that per capita (per person) global annual consumption of fish is rising. This is occurring while natural fish stocks are shrinking. The consequence of an ever growing demand for this high protein food source and diminishing natural supply, is that fish prices have risen by about 3% annualised since 1990 (FAO Fish Price Index). The second trend is that farmed fish are filling the supply gap left by reduced wild caught fish. What we show in Figure 11 is that global annual fish production has risen since 1985, but the driver of this has been global aquaculture.
How does Oceana benefit from these two industry trends?
Oceana captures profits via selling their wild-caught fish globally as well as selling fishmeal that has been caught and processed with the intention of feeding other fish. The ever growing farmed fish population needs to be fed creating a secular demand for fishmeal. Fishmeal (or small fish that are processed and fed to larger fish) have a higher amino acid content in 7 out of the 10 essential amino acids for fish feed than plant alternatives, making their inclusion in fish feed essential. Plant alternatives are the only alternatives that can be produced at scale at the moment.
Figure 11. Global fish production. Source: Food & Agriculture Organization of the United Nations. March 2019.
Regulations and licenses – a weak moat, but still a moat
The reality of fish scarcity has prompted governments all over the world to clamp down on overfishing by means of regulation. Governments generally regulate by way of fishing rights coupled with a quota, providing the fishing companies allowable catches, creating a competitive advantage. This competitive advantage for Oceana is reflected in Figure 12, which shows returns on tangible invested capital averaging 27% over the past 28 years.
Figure 12. Return on tangible invested capital. Source: Company Reports. Northstar Asset Management. March 2019.
Experienced management
Management has a wealth of experience and a steady hand at the tiller. They recognise that sustainability and close relations with Government are key success factors to ensure their performance is enduring. Oceana has a clear set of 169 defined sustainability targets, 17 aspirational targets and a timeline of 13 years (2030) to achieve these. Oceana also has a B-BBEE rating of 1, critical for retaining licenses.
Conclusion
The long-term growth tailwinds for fishing, the key success factors exhibited by the company and its underappreciation by the market, makes Oceana a business we are comfortable owning in our portfolios.