Paradoxically, it’s the so-called “blue chips” — banks and...

Paradoxically, it’s the so-called “blue chips” — banks and property trusts — that were historically regarded as safe havens, that have tumbled under the weight of the world credit crunch because of their exposure to dodgy loans. I’ll stick to bottom fishing among the all but unrecognized listed companies and this week I believe I’ve hooked a tasty catch.

Fish farmer unreasonably battered

Barramundi fish farmer Australis Aquaculture (AAQ.AX


AUSTRALIS AQUA31 July,200831/07/2008 21:21 Sydney, Australia.
Price Change % Change
0.265 +0.010 +3.920%

Company overview
Real-time quote
AAQ.AX , 0.265, +0.010, +3.920%) is set to deliver a maiden profit in 2008-09, four years after listing to develop fish farms in the USA and Vietnam.

Last week, the company delivered an up-beat investor presentation in Sydney and rose initially to 30c, before tumbling back to close at 26c on a week’s turnover of 488,000 shares after the National Bank’s shock provisions sent the market into turmoil. At the week’s closing price the company’s 88.75 million shares carry a market capitalisation of $23 million.

Australis has traded down from a 52-week high of 66c to as low as 24c in recent weeks. On fundamentals alone, the stock should be poised for significant recovery over the coming year.

As an unlisted company before 2004, its original backers had a decade of mixed results from experimenting with fish farming in Western Australia. The turnaround began with the 2004 float to acquire America’s largest indoor fish-producing facility at Turner Falls, 90 minutes west of Boston.

The initial plant purchase and an upgrade cost $4.4 million and delivered a target capacity of 700 tonnes a year. The plant was modified according to company-held patents to replicate the habitat of barramundi, a species then almost unknown to the American palate.

Fingerlings were flown in from three Australian hatcheries and by mid-2006 it had a growing inventory estimated at 140 tonnes totalling 900,000 fish and growing at the rate of 45 tonnes/month. (It takes 9 months to grow the fingerlings weighing 3gm to a fish with a harvest weight of 750-800gms.)

To develop a niche in America’s $50 billion/year seafood market, initial production was directed through up-market restaurants, followed by 400 supermarkets and trials in chain restaurants.

A cute marketing coup was scored at the White House in mid-2006 when President Bush hosted a dinner for visiting Australian Prime Minister John Howard. The main course was Australis’ barramundi.

A further plant expansion costing around $2.5 million to lift annual capacity to 1000 tonnes is approaching completion, albeit at a slower rate than expected a year ago. That has no doubt led to some smaller investors shedding stock.

Eclipsing that development, however, is the move begun a year ago to open a barramundi hatchery, nursery and grow-out facility in Vietnam with an ultimate capacity to produce 10,000 tonnes of fish a year. In June, 2008, the company was granted licences to develop such a facility on a 205-hectare site in central Vietnam.

Australis chairman Ian Mitton has predicted to shareholders that the new development when completed could add $US50 million a year to revenue. (Mitton, joined Australis as non-executive chairman in April, 2008, having previously been the founding managing-director of salmon farmer Tassel Ltd.)

Meanwhile, full year revenue for 2007-08 is expected to be around $5 million, rising on the company’s projection to between $US14 million and $US20 million in 2008-09. (The last quarter of the latest year saw revenue running at an annual rate of $US8 million).

On revenue projections for the current year, the company should deliver a maiden profit of between $1.3 to $2.3 million. At the higher rate, that equates to earnings of just 2.6c a share putting the stock on a multiple of ten times projected earnings.

While I cannot agree it is ultra cheap at this stage, if its team of qualified and experienced managers achieve their targets and achieve a trebling of revenue in the next three years, shareholders will be well rewarded.

It’s likely the company will need to raise between $6 million and $10 million to advance its expansion and to establish an initial infrastructure in Vietnam to support a 3500 tonnes/year operation. Then, hopefully, cashflow will contribute to further growth.

I picked up 10,000 shares at 26c in the route at the end of last week.