Company Overview: Angel Seafood Holdings Ltd is an Australia-based aquaculture company. The Company is focused on producing farms clean, green, organic and sustainable oyster, which it sells domestically and internationally. The Company owns or leases 41.08 hectares of oyster production licenses and leases in South Australia.


AS1 Details

Angel Seafood Holdings Ltd is an Australia-based aquaculture company that focusses on farming of clean, green, organic and sustainable oyster, which it sells domestically and internationally. The Company owns or leases 41.08 hectares of oyster production licenses and leases that in South Australia. AS1 recently got listed on ASX in the month of February 2018. The Group’s operations are not regulated by any significant environmental regulations under a law of the Commonwealth or of a state or territory. Since incorporation, the Company has expanded its footprints both geographically and in terms of oysters on hand, and this expansion is driving the Company to establish a mature model where enough spat can be purchased to ensure that its water holdings are full, and its key production of Coffin Bay is always functioning at peak output.
 

Current Stock Condition (Source: Company Reports)
 
Key Updates: The Company will release 8,293,750 ordinary shares from the escrow on 24 April 2018 according to the appropriate Listing Rule. The company has also made few changes to its Board with Mr Tim Goldsmith and Mr Ashley Roff appointed as the directors of the Company and while Mr James Rogalski resigned from his position as the director of the Company. AS1 commissioned a new equipment which included a new oyster trend that aimed at increasing its efficiency and ability to handle the increased volumes anticipated for the future. The final acquisition contract to purchase the water and its associated assets at Cowell in Franklin Harbour on the Eyre Peninsula, South Australia will be settled in July 2018.

Coffin Bay Acquisition-a step for future expansion: The Company entered into a contract to purchase a half (0.5) of the hectare of developed prime water in Coffin Bay from C & L Nominees Pty Ltd. For this, Angel Seafood will have to pay a 10 per cent of the deposit but the contract was unconditional and rest everything was subject to standard Government transfer clauses and is due to settle on 7th May 2018. The leased water adjoins Angel’s current water holdings in the Beacon Zone in Coffin Bay and this would bring the Company’s holding to 1.5Ha in this Zone and to 6Ha across Coffin Bay. Given the quality of the water and Angel’s experience in this Zone, it is anticipated that the acquisition will increase the overall oyster finishing production capacity for the Company by 15-20 per cent. The Company negotiated a price of $300,000 for this transaction which included all lease infrastructure, for the 0.5Ha of water. The purchase price was comparable with the prices it paid in 2016 to secure its initial footprint in Coffin Bay.
 

Coffin Bay (Source: Company Reports)
 
Operational and Sales Update: Primary Industries and Regions SA (PIRSA) declared that there is no POMS (Pacific Oysters Mortality Syndrome) present in the commercial oyster growing areas and made this declaration after an extensive testing. Primarily, AS1 responded to the letter received from PIRSA regarding POMS which was detected in the Port River, Adelaide. POMS was found in Wild Pacific Oysters and PIRSA had initially put the place in a standstill based on the movement of oysters in the Gulf of St Vincent and this outbreak was isolated to Port River and PIRSA increased this to cover the movement of the oysters across the State. After an extensive investigation and audit of operations, it has been confirmed that there were about 8-million of the oysters in the water and these did not experience any abnormal instances of oyster mortality. It did not affect the growing areas of the Eyre Peninsula where Angel’s water holdings (spread across four bays) were located. The Company has a strict quality control for monitoring the stock and preventing the spread of any disease. Further, Angel commenced its sales in the week starting from 21 March 2018 and received strong Easter orders, at an increased price and the management had already assessed that the best performing oysters are ready to be sold. The Company committed to supply 12,000Doz over the next two weeks (starting from 21 March 2018) primarily to the NSW market and the Company has over 40,000Doz of the oysters in the water at Coffin Bay.
 

Angel oysters stock locations (Source: Company Reports)
 
Due to increased demand and the strong condition of the stock, combined with the management’s ability to harvest the oysters, AS1 could supply 22,000oz over the short period. It achieved a price close to 80 cents per oyster for the stock sold. The company continues to have a stronger order book and is supplying the market on a weekly basis. It still has over 8- million of oysters in the water and all are in a good condition. The stock is split across the Angel’s operating areas and it is expected that Coffin Bay will soon increase its feed source for the oysters in that area, which is in line with the seasonality of this bay. It is expecting that it will deliver juvenile oysters before the end of the month.

Export Facility Update: The Company had paid a 10 per cent of deposit for the previously announced acquisition of Export Facility and the contract of sale is now unconditional, and this acquisition of the Export and Processing Facility in Port Lincoln got completed on 4^th April 2018. The facility allowed Angel to fast track the export side of the business and helped in exporting the oysters at a significant premium. This facility became the Company’s new head office so that administration efficiencies could be built up for its business and operating models. This facility is ideally located in Port Lincoln and is a significant asset for the Company. Since the acquisition got completed, management has been working hard in preparing the site, which was unoccupied for a significant period and for the Company’s upcoming AQIS Export Accreditation Inspection.
 

Financial Performance (Source: Company Reports)
 
Financial Performance: The Company’s results for the H1FY18 were out and were in line with the Board’s expectations. The Company achieved a sales revenue of over $870,000 with a fair value adjustment of over $200,000 through the conduct of its primary activity. The Company raised $8 million through an IPO and the stock started trading on the ASX from 21 February 2018. After the period end, the $8 million were converted into 4 million of performance Rights but have been subject to few conditions like achievement of the milestone of Revenue Target of $3 million for any rolling 12 -month period that commenced from 1 January 2018 and until 30 June 2021.

Despite being in an environment of limited access to spat, the Company still managed to source over $150,000 worth of juvenile oysters in the world. The Company continued to improve its lease infrastructure at both Coffin Bay and at Cowell and once the oysters are re-introduced to the bays it will allow the leases to operate as close as possible to peak efficiency. Net Tangible security for FY16 was $0.028 and whereas for FY17 was $0.054. As on 31 December 2017, 80,702,900 ordinary shares were issued and whereas as on 31 December 16, 32,428,0001 ordinary shares were issued. The consolidated net loss of the Group after income tax amounted to $(1,131,557) for FY 17 and whereas in 2016, the losses were reported at $(639,495).

Outlook: Given the developments, the company expects to witness an improved FY18 result. The Group, which is the only certified sustainable and organic oyster producer in the world, has put decent efforts in executing its Business Plan Goals and acquisition in Coffin Bay will lay the ground work for future expansion. Further, the extra finishing capacity will allow the Company to bring more of its Clean Green and Sustainable Oysters to the market. After the Company successfully raised IPO and got listed on ASX, the Board of the Company was rest assured that there were no Growing Concern issues and auditors provided an unmodified opinion.SA Oyster Industry experts are working towards the short supply of spat and SA Government provided the relief for the next two years with the waiving off of the annual oyster license and license payments. This will help the group save about $140,000 over the coming two years.

Stock Performance: While the group is exposed to the risk of POMS triggering a mortality event, the Company recently went for extensive audits for both sustainable and organic re-certification and the Company announced that both the key certifications got renewed. This sets the Company apart from other oyster growers and ensures that the Company’s products are tracked from spat to plate and are of highest quality. Basic Earnings per share as on 31 December 2017 was recorded at (1.40); and whereas as on 31 December 2016, EPS was reported at (1.97). After getting listed on ASX, the share prices were down by 9.4 per cent; but with few major announcements and updates, the stock showed an upward trend in the past one week with a jump of 7.41 per cent. In view of the efforts undertaken by the group, we give a “Speculative Buy” recommendation at the current market price of  $0.14
 

AS1 Daily Chart (Source: Thomson Reuters)

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