Going swimmingly 08/08/2006American appetites for true-blue...

Going swimmingly
08/08/2006

American appetites for true-blue seafood should bring this aquaculture company a tale of good fortune. David Haselhurst pounces.

Share punters with an appetite for fish might be tempted into this exotic enterprise, which claims to be the first and only significant producer of Australian barramundi in the US.
Australis Aquaculture (AAQ) appears set for a turnaround after trading down from a year’s high of 59.5¢ a share to a recent low of 35¢. At 38¢ last week, it carried a market capitalisation of $22m.

Australis is on track to be cash-flow positive this year. After a decade of mixed results from experimenting with fish farming in Australia, the company floated two years ago to acquire America’s largest indoor fish-producing facility at Turner Falls, 90 minutes west of Boston.

The plant was modified according to company-held patents to replicate the habitat of the barramundi. Then, every six weeks for the past 18 months, 200,000 fingerlings have been air-freighted from one of three contracted Australian hatcheries.

The company held a growing inventory estimated at 140 tonnes at June 30, totalling 900,000 fish. It was growing at a rate of 45 tonnes a month. Nine months take the fish from fingerlings, weighing 3g, to a harvest weight of 750g to 800g. By last February, weekly sales had grown to 6500kg of whole fish or about half that as fillets.

To develop a niche in America’s $50bn-a-year seafood market, initial production has been directed through good restaurants, 400 supermarkets and trials in chain restaurants. A coup was scored at the White House recently when President Bush hosted a dinner for John Howard. The main course was Australis’ barramundi.

The initial plant purchase and upgrade cost $4.4m and delivered a targeted capacity of 700 tonnes a year. In May, Australis began a $2.4m expansion to be completed by November for a 1000-tonne facility. That production rate is budgeted to be reached towards the end of this financial year to yield sales of $12m. The company expects to slash unit costs by about 18%.

All this activity has led to management shifting from Perth to the US. Perth-based founder and managing director Stewart Graham has moved up to chairman. He’s replaced by US executive director Josh Goldman, who has been involved with Australis since 1992 and is the author of the patents that underpin the success of the US operations. Another new US-based non-executive director is Michael Cohen, founder and CEO of Lightlife Foods until Conagra took it over in 2000.

Soon after taking the top job, Goldman announced a new hatchery had been established at Turner Falls. Breeding capacity is 2 million fingerlings a year rising to 7 million under plans to lift production to 5000 tonnes by 2012. Sales value of that output in 2006 dollars would be $45m. Australis last month took an option on 7ha nearby where it plans to duplicate the existing plant on a larger scale, beginning in mid-2007.

Australis shares are fairly tightly held, with 58 million on issue of which 15.97 million issued to promoters and directors have been held in escrow for two years. They will become freely tradeable from August 4, so there may be opportunities for buyers if some of them get into the market.

Most sales in the past year have been due to impatience by long-term small investors. Institutional investors also seem to like the story. In March, State One Stockbroking placed 3.5 million shares at 40¢ to professional investors to raise $1.4m to accelerate the company’s market development. The largest shareholders are Acorn Capital (14%), chairman Graham (13.1%) and State One Capital (8.7%).

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