Vessel Upgrades And Sourcing Shifts Will Expand Export Markets

Key Takeaways

• Upgraded operations and strategic stockpiling have boosted efficiency, enabled steady production, and positioned Oceana for higher margins and future revenue growth.
  
• Expanding export markets and strong demand for sustainable seafood support international growth, while value chain integration drives profitability in fishmeal and fish oil.
  
• Heavy reliance on volatile fish stocks, rising debt, and limited diversification expose the company to long-term regulatory, market, and geopolitical risks threatening revenue stability.

Catalysts

Operates as a fishing and food processing company in South Africa, Namibia, rest of Africa, North America, Europe, the Far East, and internationally.

• Recent investments in vessel and factory upgrades have significantly improved operational efficiencies and catch rates in both Lucky Star and Wild caught divisions, while further enhancements and new technology (e.g., the new Catamaran for squid) are expected to drive additional cost reductions and higher throughput, supporting future net margin and earnings growth.
  
• Oceana has executed a strategic shift in frozen pilchard sourcing by stockpiling high-quality product from the South Pacific, enabling uninterrupted production and strong inventory levels despite regional supply shortages-this positions the company for above-market sales volume growth and better gross margins over the next several quarters.
  
• Structural consumer demand for affordable animal protein, amplified by inflation in meat/chicken prices and continued bans on certain imports, is driving Lucky Star product outperformance versus the broader food market and is likely to catalyze continued revenue and earnings growth as consumer preferences for healthy, sustainable seafood persist.
  
• Continuous expansion of export markets (notably into the rest of Africa), leveraging Oceana's operational resilience, brand strength, and upgraded supply chain capabilities, opens new high-growth channels, broadening international revenue opportunities and reducing reliance on volatile domestic demand.
  
• The long-term global uptick in salmon aquaculture, combined with constrained marine resources, is set to drive sustained demand and pricing for fishmeal and fish oil; with Oceana's vertically integrated presence across the value chain and recent efficiency gains, this backdrop is supportive of improved profitability and revenue growth in these product lines as global market conditions normalize.

Oceana Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Oceana Group's revenue will grow by 4.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.7% today to 10.1% in 3 years time.
• Analysts expect earnings to reach ZAR 1.2 billion (and earnings per share of ZAR 9.44) by about August 2028, up from ZAR 787.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.5x on those 2028 earnings, up from 7.8x today. This future PE is lower than the current PE for the ZA Food industry at 9.8x.
• Analysts expect the number of shares outstanding to decline by 0.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 16.74%, as per the Simply Wall St company report.

Oceana Group Future Earnings Per Share Growth

Risks

• Persistent volatility in global fish oil and fishmeal prices, driven by fluctuating supply from major producers like Peru and uncertain demand recovery in key markets such as China, could undermine Oceana Group's revenue stability and compress net margins, as evidenced by the 33.5% decline in operating profit and 43.9% drop in headline earnings per share.
  
• Ongoing biomass and catch rate uncertainty-highlighted by research indicating poor recruitment levels for pilchards and anchovy, despite some positive short-term catches-suggests potential long-term risks to fish stock sustainability, which could lead to reduced quotas and revenue pressure in core business lines.
  
• Rising debt levels and increased net interest expense (with a net debt-to-EBITDA ratio rising to 2.2x, and 3.7x in South Africa) due to elevated working capital and capital expenditure requirements may limit the company's flexibility to invest in growth initiatives and impact future net earnings and dividend capacity.
  
• High dependence on a finite resource-particularly wild-caught fish and pilchard supply-combined with limited diversification into alternative or plant-based proteins, exposes the company to long-term shifts in consumer behavior and regulatory action, potentially eroding market share and pressuring long-term sales growth.
  
• Exposure to ongoing and intensifying geopolitical and trade risks, including tariffs on seafood exports to the U.S. and Europe as well as uncertainties around African export markets and input sourcing (e.g., Brazilian chicken), could result in unpredictable revenue streams, increased input costs, and overall earnings volatility.

Valuation

• The analysts have a consensus price target of ZAR60.0 for Oceana Group based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ZAR11.8 billion, earnings will come to ZAR1.2 billion, and it would be trading on a PE ratio of 9.5x, assuming you use a discount rate of 16.7%.
• Given the current share price of ZAR51.43, the analyst price target of ZAR60.0 is 14.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.