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

Decent Improvement in Top Line Amid Challenging Environment: Angel Seafood Holdings Limited (ASX: AS1) is a micro-cap aquaculture company with the market capitalization of ~A$18.3 Mn as of 8 February 2019. The group was incorporated on 27 September 2016 and it is being currently headed by Mr. Zac Halman – the Chief Executive Officer (CEO) and the Founder. The group farms and produces clean, green, organic and sustainable oysters and sells these domestically and internationally. Since inception, the group has steadily grown into a premium, organic and sustainable aquaculture company and is providing world-class oysters to its domestic and international market. It had earlier published their results for FY 2018 which have showcased significant improvement on the YoY basis. The consolidated net loss post income tax stood at A$1,142,629 in FY 2018 which reflects an improvement of 31.48% on the YoY basis. The company had stated that they had worked hard to make sure that each dollar which is being shelled out represents the best value. The company’s revenues have also showcased an improvement of 5.3% on the YoY basis and stood at $1,458,916 even though the broader market environment was challenging where there was difficulty in obtaining the spat. As a result, spat production industry which is based in South Australia has established and expanded which had improved the supply of spat. On the analysis front, the company is also possessing a strong position when it comes to margins in FY 2018 as its key margins have witnessed a substantial improvement on the YoY basis. Its net margin stood at -77.4% in FY 2018 which implies an improvement of 42.6% on the YoY basis which implies that the company has been efficient in converting its top line number into the bottom line. Moreover, the company’s operating margin has also witnessed an improvement of 12.0% in FY 2018 on the YoY basis to -87.0%. We expect that the company’s focus on margins’ improvement would continue to support it moving forward and this strategy might also place the company in a strong position to tap the growth opportunities.
 

FY18 P&L Statement (Source: Company Reports)

Improved Financial Position Places AS1 To Witness Growth: Angel Seafood Holdings Limited happens to be in a better financial position as seen through the latest performance. The company’s net assets in FY 2018 have witnessed a substantial rise of 164% and stood at $11.12 million. The company also stated that, on July 11, 2018, it got an approval from National Australia Bank Limited for additional loan facility amounting to $2,000,000. As a result, the total available debt from National Australia Bank Limited stood at $2,800,000. The company stated that it is inching towards a decent as well as a stable financial position which might support to expand its current operations.

Moreover, there has been a substantial improvement in the company’s current ratio which, in FY 2018, stood at 6.24x as compared to 2.42x in FY 2017 reflecting that the company’s liquidity position has witnessed a substantial improvement on the YoY basis placing it in the better position to cater to its short-term commitments. Additionally, the company’s FY 2018 current ratio is higher than the industry median of 1.38x signifying strong liquidity standing as compared to the broader industry.

Robust Business Strategy: As stated by Angel Seafood Holdings, the process with respect to producing the optimal oysters happens to involve moving them during their life’s different stages so that they can get the right nutrients. The company’s strategy which focuses on owning the assets throughout multiple bays supports it to optimize the production as well as provide diversification. The company, in its investor information presentation for October 2018, had stated that it has maintained its focus on the creation of a platform for the growth with the help of acquisition of high-quality water leases, deployments in the infrastructure as well as adopting best farming practices. The company has been focusing on sales maximisation and is also focusing on managing the cost of production so that the scale efficiencies can be maximised.
 
  
Business Strategy (Source: Company Reports)

Standing to Mitigate the Crucial Risks: Angel Seafood Holdings Limited happens to be in the healthy position to tackle the key risks which might arise moving forward. The company happens to be geographically diversified and, as a result, risks of being impacted by POMS (or Pacific Oyster Mortality Syndrome) gets reduced. The company had stated that the greatest threat with respect to oyster production in Australia happens to be POMS.

The company had earlier stated that it has plans to buy more spat so that the risk against the POMS event can be mitigated. As per the management, the company has witnessed robust growth momentum in sales in Q1 FY 2019 as it rose 121% over the previous quarter. The company witnessed sales amounting to $1.1 million. Moreover, the company added that it has been witnessing a robust rise in the prices domestically.

A Look at latest quarterly result (Q2 FY 2019): Angel Seafood Holdings Limited had earlier reported the results for Q2 FY 2019 which ended on December 31, 2018. The company witnessed the sales amounting to $1.37 million which implies the substantial rise of 240% on the prior corresponding period. The company had increased the water holdings to 70Ha throughout Eyre Peninsula. The top management of the company had stated that, even though the farming environment happens to be challenging, the company had showcased business model’s scalability which has been witnessing favourable momentum via the multi-bay farming model. The company had also stated that it had continued the capital investment program in the quarter as it had completed the processing facility enhancements as well as lease expansion with respect to Coffin Bay, the delivery with regards to new large oyster-tender as well as export facility’s extension in the Port Lincoln to include the head office. The company had also expanded the operations in the Coffin Bay with the help of acquisition of 3.5-Hectares of the prime water. The agreement also contained the purchase of approximately 2-million oysters along with future spat orders. The capital expenditure as well as Coffin Bay water expansion (Hank acquisition) got financed with the help of existing cash flow as well as debt facility which was provided by National Australia Bank Limited. With respect to the supply of spat, Angel Seafood Holdings had stated that it witnessed a rise in the supply in the December 2018 quarter. The company had tapped the opportunity and, thus, increased the purchase of spat before summer.
 

Calendar Year Sales (Source: Company Reports)

Drivers for Future: Angel Seafood Holdings Limited had stated that they have maintained their focus towards the optimization of the oyster production so that the sales can be maximized. Also, it has a plan to utilize the benefits of its scale. Moving forward, the company would be working towards the improvement of the access to spat as well as its plans to implement the strategies so that the spat mortality can be lowered. The company had stated that it would be evaluating the opportunities which would be helping in achieving future growth.


Moving forward, Angel Seafood Holdings would be focusing towards husbandry of stock in water as well as towards the maintenance with regards to lease infrastructure. As a result of the natural cycle of oysters (spawning), they become unfit for the sale across January as well as February each year. There are expectations that the sales might recommence in March while there are expectations that it would be witnessing positive momentum in the financial year’s last quarter. Additionally, there are expectations that spat market would be witnessing improvement across CY2019. Angel Seafood had also stated that it happens to be on track to become operationally cash flow positive in FY 2019. Recently, the company announced that it will release 5,855,000 ordinary shares to its shareholders from voluntary escrow on 21 February 2019 as per the appropriate Listing Rule.
 

Stock Recommendation: In the last six months, the stock has fallen 6.45% and is trading below the average of 52 weeks high and low level of ~$0.173. From the technical standpoint, a technical indicator, Exponential Moving Average or EMA has been applied on the daily chart of Angel Seafood Holdings Limited, and default values were used for the purposes. After careful observation, it was noticed that the company’s stock price has crossed the EMA and had trended in the upward direction. This reflects the bullish momentum which builds the expectations that the company might witness an upward momentum moving forward. Besides this, the company is expected to be benefited by its strong financial position which might support expansion capability moving forward. Moreover, the company is diversified geographically which could also act as a tailwind in the long-run. However, the company is also exposed to certain risks like competition risk, disease risk, title and renewal risk as well as environmental risk. 

Based on the afore-mentioned factors, we maintain our “Speculative Buy” rating on the stock at the current market price of A$0.145 per share.



AS1 Daily Chart (Source: Thomson Reuters)

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