Food fundamentals remain firmly in favour of the fish farming specialist
Anyone who foresaw salmon, shrimp and other more exotic seafood would become this generation’s food option of choice deserves to have made a lot of money.
And that, in essence, is what AIM-listed Benchmark Holdings PLC (LON:BMK) has done.
Malcolm Pye, Benchmark’s chief executive, says twenty years ago the signs were clear the direction that the seafood business was heading.
The skill, of course, is being able to tap into that burgeoning demand and make a success of it, something Benchmark has made a pretty good fist of so far.
Set up in 2000, the business is now worth £350mln, but having just commissioned a new salmon breeding operation in Salten, Norway, another level seems to be beckoning.
Norway is the world’s largest salmon breeding region and the new facility is the most modern in the world, says Pye.
The new plant will enable Benchmark to bring production in-house, both enhancing its profitability and enabling it to supply biosecure eggs all year-round.
Benchmark’s salmon breeding capacity, meanwhile, will rise by 75%.
This extra capability could not be coming at a better time, says Pye, as it just about reached the limit of its existing facilities due to the rapid progress since it was established.
Even though Benchmark is now eighteen years old, this remains a long-term growth story.
Fundamentals remain firmly in the company’s favour, Pye explains.
First, the fishing industry has just about reached the limit of what it can catch in the sea and might even be in decline.
Then there is the emergence of seafood as an essential component of heathy diets.
And finally a new wealthy, middle class has started to flex its muscles in the southern hemisphere, which traditionally has been a fish-eating culture.
Overriding all of these, however, is the fact that to support a growing global population, more food needs to be produced and currently just 2% of the world’s food output comes from the water.
Pye believes Benchmark is ideally placed to take advantage of the growth of ‘aquaculture’ both to boost food production and meet changing tastes.
All bases covered
The business has three core divisions, breeding and genetics – which includes characteristics such as disease resistance, production efficiency and product quality.
Advanced nutrition specialises in feeding the young animals including probiotics to get through the early life stages.
Animal health, meanwhile, tackles serious issues such as sea lice in fish farming.
Sea lice are one of the banes of industrialised salmon farms, but Benchmark now has products that effectively control the problem while also removing the medicine before it goes back into the sea.
Benchmark estimates the new product can generate sales of £45mln once licensed.
That compares with total group sales of £140mln in FY17, on which it made underlying profits [EBITDA] of £15.7mln.
In its latest half year, sales rose by 9% to £76mln and for the full year research house Equity Development expects turnover to climb to £162mln.
That’s before Salten kicks in, after which sales are expected to rise to £203mln by 2020.
By that stage, Benchmark’s underlying earnings will be close to £27mln with earnings also receiving a boost from the joint venture established earlier this year with Chilean salmon producer, AquaChile.
Chile is the second largest salmon producing country after Norway and AquaChile the world’s sixth largest producer.
New species picking up momentum
But there is more to Benchmark’s technology than just salmon.
Pye says it is better to regard its technology as an aquaculture platform that can be applied to many different species especially as genetic technology is common across species.
Salmon and shrimp account for the bulk of revenues currently, but Benchmark is starting to see good demand for sea bass in Europe, sea bream (dorado) and in the southern hemisphere, tilapia.
As these species become more popular the opportunities for Benchmark should grow in tandem.
“We have all aspects of the aquaculture production cycle covered,” says Pye.
Equity Development has a price target of 98.5p compared to a current market price of 62.5p.