Premier Fishing-THE SOUTH AFRICAN INVESTOR
Analysis of the income account
By Lawrence Michael
14 April 2020
A common-stock represents part-ownership of a business.
Therefore, in buying stock,
We try and have a good understanding of the underlying business.
We are not interested in looking at charts.
As part of understanding the business;
We try to establish what drives earnings (sales).
The worst thing you can do is purchase a gold stocks on the back of a price rally only to find out that the company has 2 more years of gold reserves remaining or their mining rights have expired. Stuff which is disclosed in the annual reports.
This is an analysis of the revenue of Premier Fishing and Brands (PFB) to serve as an illustration.
PFB is a fishing company and listed on the JSE.
Its biggest businesses are processing and selling
As per South African law,
A commercial farmer is required to have a fishing license.
Fishing licenses are issued by the Department of Agriculture, Forestry and Fisheries (DAFF).
Source: pre-listing statement page 12.
*PFB grows Abalone on a farm which is currently being expanded.
You will notice that most of their licenses expire this year.
There has been a slowness in awarding licenses by DAFF;
This has been shifted to 31 December 2021 and licenses extended.
Should it happen that PFB’s license rights are reduced/not renewed;
PFB can still acquire “catch” from other parties to satisfy its established customer base.
This is a strategy Lucky Star has followed in light of falling Sardine limits and the need to protect its market share.
A fishing license gives right to fish a proportion of the total allowable catch (TAC).
A TAC is an annual limit of the amount of species that can be fished and is set by the DAFF.
For example, with the case of South Coast rock lobster, the 2019 TAC is 321 tons.
PFB’s fishing license gives it rights to 40% of this or 129 tons.
Source: 2019 integrated report
PFB’s earns a huge chunk of its revenue outside the country.
We should be mindful of the currency exchange rates.
Source: 2019 integrated report
Table: Sales in volume and Rands
Lobster sales are down as a result of the lowering of the TAC for West Coast Rock Lobster.
Squid revenue has shot up due to the increase of volumes sold.
Together, PFB and Talhado control about 30% of the local squid market.
Pelagic and Hake revenue is down due to falling Pilchard (Sardine) catch limits.
The limited supply has managed to keep prices high.
Abalone sales are down because of a Red-tide in 2019 that affected volumes that could be sold.
Going forward to 2020
By studying the revenue of PFB
We have ascertained some of its competitive advantages
When it comes to flipping coins,
The closer the odds are to 1 that a company’s product will sell;
That entity is likely to do well.
Studying the revenues of companies had enabled me to see how good a company and its businesses are doing.
The revenue figure on the Income statement does not tell me much.
You can have a spike in revenue merely because of a supply-shortage.
We had food prices going up in March 2016 while the quantities sold went down because of the drought.
When I pick up the Comair annual report and read about the number of flights and passengers ferried,
I can see how forward the company is going.
There are some industries you will find hard to understand.
Tech companies have had a boom in internet advertising and online storage revenue
I have no idea what the future outlook of these industries is and I’m only 25.
The few things I can understand;
Eggs, private-schools, fishing and airlines are more than enough to make money.
Quantum Food Holdings -link
Lucky Star- Oceana-link
Article PDF file-pdf
2019 PFB Integrated Rreport-pdf
Pre-listing statement -pdf