Oceana Group Limited (JSE: OCE) has released its latest earnings for the year ended 30 September 2023, showcasing an impressive show of resilience. Oceana thrived amid a challenging economic landscape marked by high inflation and interest rates impacting South African consumers. Their strategic prowess led to a remarkable 22.6% surge in revenues, driving an impressive 29.2% surge in headline earnings per share.
The unwavering demand for affordable protein was fuelling this success story, particularly exemplified by their iconic Lucky Star brand. Bolstered by increased sales volumes, favourable currency exchange rates, and intelligent pricing strategies, Oceana’s top line soared. Their ability to navigate these turbulent times and deliver such robust results is a testament to their strategic foresight and market adaptability.
Technical
On the 1D chart, a breakout threatens a descending channel, with the price pushing through the dynamic resistance and above the 25-SMA (green line) toward resistance at R69.08. The price may have to clear this resistance to enforce a sustainable bullish run, keeping the sellers in play for a potential retracement.
Should the price fail to clear R69.08, the pullback could lead the price back to the demand zone at R67.81, with the breakout level of the channel not far below at R66.47. Any movement below this level could see the price continuing its prior downtrend toward the neckline resistance at R64.39.
Alternatively, a bullish trend could form above R69.08, with the 100-SMA (orange line) and 50-SMA (blue line) offering resistance close to the Fibonacci midpoint at R70.98. Clearing these levels could see a momentum shift toward the Fibonacci golden ratio at R72.41. In the longer term, a sustainable uptrend could lead the price toward R74.57 and R77.04 before the estimated fair value of R79.99 comes into play, which presents a 17.54% potential upside from the current price.
Fundamental
Oceana has had a decent year, with its price appreciating over 14%, a noticeable outperformance relative to the JSE Top 40, which has appreciated a mere 3.92% over the same period. The company’s focus on affordable protein and its diversified product base has helped it navigate the macroeconomic challenges in the South African economy. Furthermore, the company has benefitted from the spike in chicken prices in South Africa amid the bird flu outbreak, which has resulted in distressed consumers tilting more toward affordability, benefitting Oceana’s canned fish business. So, as the company proved its resilience in its latest earnings report, could we see investors getting behind this growth story to propel the price further?
The group reported a 22.6% revenue expansion to R9.9Bn, driven by better prices across its categories and higher demand for affordable protein, which has triggered a 9% increase in sales volumes to 9.6M Lucky Star cartons across its local and export markets. The graph below shows that the top line improved across all segments. Canned Fish and Fishmeal in Africa remained its most significant revenue contributor, generating 56% of its revenue. Fishmeal and Fish oil in the US contributes 27% of the group’s revenue, with the remaining 17% coming from its Wild Caught Seafood segment. The strong top-line performance was further reflected in the company’s bottom line, where headline earnings were up 28.9% at R980M, resulting in a 29.2% expansion in headline earnings per share (HEPS), which amounted to 808.8 cents per share.
One of the standout metrics in the company’s report was its capital expenditures. In the graph below, it becomes evident that the company did not have the capacity to allocate capital toward growth and expansion, as the majority of expenditures went toward replacement projects. However, in 2023, this narrative changed. The company was able to spend R190M on expansion, with the major projects for the year including R54M spent on initial phase of fishmeal and oil facility upgrades, R61M spent on construction of canned meat facilities, and another R106M that was allocated toward upgrades to its flagship hake trawler. In addition, the company is expanding its planned capital expenditure for 2024 to R593M, a significant increase from this year’s R458M, which will go toward investments to upgrade the South African fishmeal facilities and wild-caught seafood fleet, which includes fleet refrigeration conversion to environmentally friendly gas.
What is allowing the group to phase out large capital expenditures is the debt reduction plan that was initiated to create balance sheet capacity for growth. This year, the group repaid R767M term debt, with its net debt/EBITDA ratio declining from 1.7X in 2022 to 1.2X. Its net debt from Africa contracted by 13% to R884M, with a net debt/EBITDA ratio of 1.0X in that region, while its net debt in the USA fell by 29% to $61M, where the company operates with a net debt/EBITDA ratio of 1.3X. In the current high-interest rate environment, these are optimistic developments, as the company is strategically placing itself in a position to take advantage of future growth opportunities in the industry by ensuring a healthy balance sheet.
Summary
Oceana Group Limited released an impressive set of results for the year ended 30 September 2023. In the upcoming sessions, resistance at R69.08 could be a crucial level to watch to gauge whether the current bullish momentum will continue or whether a reversal of the breakout is imminent. The estimated fair value is established at R79.99, which presents a 17.54% potential upside from current levels.
Sources: Koyfin, Tradingview, Moneyweb, Oceana Group Limited
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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