beatonsMay 18, 2016, 4:42 pm

Canada’s Clearwater Seafoods saw first quarter sales to China increase 41.1% year-on-year, with the product range of UK-based Macduff Shellfish adding to the growth potential.

In Q1, sales to customers in China increased CAD 5.2 million ($4m) to CAD 17.7m, due to increased sales volumes for clams, shrimp, sea scallops and lobster and “strong market demand that increased selling prices for the majority of our species”, said Clearwater.

This puts China as the second largest market for Clearwater in Q1, behind Europe (see graph below). In Q1 of 2015, China was behind Europe, the US and also Japan.

Macduff, bought by Clearwater last year, will likely see this growth continue.

“Furthermore, with the increased supply resulting from the acquisition of Macduff, we believe Clearwater now has even more breadth of product for the Chinese market,” wrote Doug Cooper, an analyst with Beacon Securities, in a report on Q1.

“Management indicated that its Chinese buyers have visited Scotland to examine Macduff’s products. In particular, management indicated that it believes there is a significant opportunity for brown crab and whelk from Macduff,” wrote Cooper, in a report seen by Undercurrent News.

“One must recall that Macduff has minimal sales in China, in fact Macduff sells almost entirely to Europe,” he added.

 Beacon is modeling for Clearwater to hit CAD 643.1m in turnover and consolidated earnings before interest, taxes, depreciation and amortization (ebitda) of CAD 142.1m, compared to sales of 504.9m and ebitda of CAD 109.7m in 2015.

“The acquisition of Macduff has expanded the product range Clearwater can make available to its large and growing core customer base – especially in Asia and the Americas,” noted Clearwater.

“We see tremendous opportunity to the utilize the sales and marketing strength of the Clearwater brand and organization to provide expanded market and customer service/access to Macduff’s four major species – scallops, langoustines, whelk and crab,” the company said.

Beacon has a buy rating on Clearwater, with a CAD 18 target price. The shares are currently at CAD 13.75.

This is based on the growth in the Chinese middle class, which is expected to hit 200m households in 2025, up from 80m today.

“That middle class will want to consume more protein and their historical diet includes significantly more seafood (40%) than their North American counterparts (15%). With limited global supply of wild caught seafood, that demand-supply imbalance should continue to have a positive impact on pricing,” wrote Cooper.

In addition, “there are multiple reports of declining fish stocks in the South China Sea, primarily as a result of overfishing”, he added. “With growing domestic demand, China will not be able to satisfy this demand from domestic production. This should leave Clearwater in an ideal position as a quality supplier.”

Q1 sales in Japan, the next largest market in Asia and formerly the company’s largest in the region, increased 16.2% y-o-y, to CAD 15.6m.

The increase in sales was primarily a result of strong demand that increased sales prices for clams and shrimp, as well favorable foreign exchange rates, the company said.

In the rest of Asia, which includes Korea, Taiwan, Singapore and other Asian countries, sales increased CAD 5.6m to CAD 9.7m, primarily as a result of the acquisition of Macduff.

Macduff sales within this region primarily related to whelk. The deal increased sales by CAD 4.7m, said Clearwater.

Higher sales volumes and prices for clams, sea scallops and shrimp also contributed to the increase in sales, it said.

By species, scallops were the big driver of the increase (see table below), rising 101.4% y-o-y, to CAD 39.06m.

“Our supply of sea scallops and Argentine scallops was higher in the first quarter of 2016 as compared to 2015. In addition to Macduff sales, base volumes were higher in both sea scallops and Argentine scallops,” the company said.

“During the first quarter of 2015 supply was reduced due to a combination of difficult weather conditions, a vessel refit and harvesting delays with a new Argentine vessel,” said Clearwater.

The acquisition of Macduff provided sales of CAD 25.8m, including scallops, langoustine, crab and other shellfish, such as whelk.

A strong US dollar, yen and euro compared to the Canadian dollar generated a CAD 6.9m increase in sales, said Clearwater.

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