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

Amid Challenges, Angel Seafood Holdings Witnessed YoY Rise in Revenues: Angel Seafood Holdings Limited (ASX: AS1) managed to grab a position on Australian Securities Exchange or ASX in February 2018 and has raised $8 million of the capital. In FY 2018, the company incurred consolidated loss post the income tax amounting to $1,142,629 which implies the significant improvement of 31.48% on the YoY basis reflecting the deployments the company has made towards the business operations. In the same period of the previous year, the company’s consolidated loss post the income tax was $1,667,519. The company’s revenues in FY 2018 were $1,510,511 which implies the rise of 6.70% on the YoY basis even though there have been numerous challenges in the broader market environment. As depicted by the company’s annual report, obtaining the spat was hard. As a result, the spat production industry got built up in the South-Australia which supported spat in terms of the supply.

Moving forward, Angel Seafoods is to be supported by its diversified geographical position, strong demand of its oysters, significant deployments as well as by the favorable pricing environment domestically. However, the company is exposed to certain risks like the competition risk, title, and renewal risk as well as disease risk. 
 

AS1’s Growth in Revenues (Source: Company Reports)

Developing Sale Markets, Adequate Spat Remains Primary Objective: While Angel Seafood Holdings has been working towards the activities which are inclined towards the favorable performance of the company. The adequate availability of spat needs to be there as this could support the company’s desired outcomes. The company also has the objective of maintaining as well as developing important export as well as domestic markets which could support its sales in years to come.

Angel Seafood has also maintained its focus towards the workforce. It is working towards the initiatives which could support the company in its operations which could help it in becoming the operational cash flow positive moving forward. The company would also be looking for the opportunities which would be supportive to it in terms of the development goals as well as growth on a long-term basis. Broadly, the company plans to make the shareholders satisfied.  

Owning Assets, Platform Creation Makes Up AS1’s Strategy: Angel Seafood Holdings had stated that in order to produce optimal oysters there is a requirement of moving them across several stages with respect to their life so that they can receive adequate nutrients. As demonstrated by the investor information presentation (October 2018), the company happens to possess assets across the multiple bays which supports the company in terms of diversification as well as from the production point of view. The company had stated that they are developing the platform which could support it in terms of growth prospects with the help of acquiring high-quality water leases as well as with the help of best practices related to the farming. However, it is also making deployments with respect to the infrastructure. The company has been maintaining its focus towards the sales maximization and also plans to manage the production costs so that the efficiencies in scale can be achieved.

The company has been improving its scale of the operations. With regards to the water-based infrastructure, it has managed to wrap up the upgrades. The company would be able to hold more than 20 million oysters with respect to the water holdings which are in the Smoky Bay, Haslam as well as Cowell.
 

AS1’s Strategy (Source: Company Reports)

Expecting Positive Operating Cashflow in FY19: As depicted by Angel Seafood’ investor information presentation (October 2018), considering the present footprint, the company can wrap up 6-7 million oysters on the per annum basis. However, the company also stated that, with regards to the water leases, it could hold 20 million oysters. The company is presently getting the sales price (average) in the range of $0.80- $0.85 per oyster. Considering the pricing as well as volumes, the company happens to be on the right path which could lead it to the positive operating cash flow (or OCF) in FY 2019. As and when there could be a rise in the production, the company can witness economies of scale. In the medium term, the company believes that it could acquire more finishing capacity which could support the company in wrapping up 12 million oysters per financial year.


Australian Average Sale Price Per Oyster (cents) (Source: Company Reports)

Well Placed to Tackle POMS Disease: Angel Seafood Holdings had stated that it happens to be in a healthy position when it comes to tackling POMS (or Pacific Oyster Mortality Syndrome) disease. The company’s geographical diversification standing might support the company and might create lesser chances of being faced by POMS. The company had, in its investor information presentation (October 2018), stated that it expects that buying more spat would also support the company in tackling the POMS event. 

It would also be important to note that the company has witnessed significant progress after it got listed on the stock exchange. The deployments which have been made by the company have been rewarding it in terms of growth opportunities. At the time of the initial public offering, the company possessed 51Ha of water which later on got increased to 67Ha implying the rise of 31%. In the September 2018 quarter, the company’s net cash which got used in the operating activities was A$0.160 million. On the other hand, the current ratio and Quick ratio substantially increased from 2.42x and 1.52x to 6.24x and 4.83x, respectively in FY18 over the prior year, reflecting the decent liquidity position to fund its growth objectives.

  
Net Cash Used in Operating Activities (Source: Company Reports)

Robust Momentum in Sales in Q1 FY 2019: Angel Seafoods Holdings witnessed substantial growth of 121% in the sales for Q1 FY 2019 as compared to the previous quarter. The company has managed to generate sales amounting to $1.1 million while it incurred operational expenses amounting to $1.0 million in Q1 FY 2019. As demonstrated by the press release which was published, the company had witnessed robust demand with respect to its oysters. The company had also stated that considering the scenario of the prices with regards to the domestic market coupled with the robust demand, the company would remain inclined towards domestic selling.

The company had also reflected favorable views regarding enhancing its scale with the help of deployments in the infrastructure as well as high-quality water assets acquisition. Angel Seafood had also stated they have managed to increase the debt facilities (available) with the National Australia Bank. As a result, the company happens to be in a strong position in terms of the funding opportunities which might arise.

Working Towards Production Happens to Be a Focus Area Moving Forward: In the investor information presentation (October 2018), Angel Seafood Holdings had stated that they would be maintaining their primary focus towards enhancing the production of oyster in FY 2019 so that the sales can be improved. Additionally, in FY 2019, would also be working towards the activities which could help it in terms of spat accessibility.

Angel Holdings Limited would also be working to tap the opportunities which could help it witnessing growth moving forward. As depicted by the release of December 12, 2018, the company is in the significant position considering the time during which it witnesses robust demand. Moreover, the company had also witnessed improvement in its important ratios in FY 2018 on the YoY basis. The gross margin has improved from -1.5% in FY 2017 to 53.3% in FY 2018. The company had witnessed a rise of 1200 bps in the operating margin on a YoY basis. In FY 2017, Angel’s operating margin was -99% while in FY 2018 the ratio witnessed a rise to -87%. These improvements in the key ratios provide the confidence that the company might witness growth moving forward.

Stock Recommendation and Outlook: In the last six months, the stock has fallen 3.57% (as at December 20, 2018) and trading close to its lower level thus posing an attractive opportunity for the investors to acquire the stock at these levels. From the technical standpoint, a technical indicator named Moving Average Convergence Divergence (or MACD) has been applied on a daily chart basis, and the default values have been considered. As per the observation, the MACD line has crossed the signal line and is moving downwards which signifies the bearish momentum.  However, some optimism can be drawn from the company’s progress which has been made with respect to the scale improvement. On the other hand, the key ratios have witnessed a rise on the YoY basis which further supports the optimism about the company’s performance. Moreover, the focus towards improving the production of oyster, strong position to tap the growth opportunities, as well as expected growth in Angel’s oysters, are expected to act as tailwinds for the company’s performance moving forward. Based on aforesaid facts and current trading scenario, we give a “Speculative Buy” recommendation on Angel Seafood Holdings Limited at the current market price of A$0.135.
 

AS1 Daily Chart (Source: Thomson Reuters)

 
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