The New Criterion: two ways to invest in living creatures

An abalone grower is seeking to join the expanding ASX-listed seafood sector, but will it be a tasty morsel for investors? Speaking of critters, koalas will be off-limits at a proposed new zoo in Western Sydney – much to the relief of the incumbent facility.

Ocean Grown Abalone (not yet listed)

The head of WA nickel producer Panoramic Resources, Peter Harold is now watching more commodity prices than just the metals index.

That’s because Harold has bobbed up as chairman of Ocean Grown Abalone, the latest IPO candidate in an ocean of seafood listings.

“Nickel and abalone are valuable commodities and the Chinese seem to want a lot of both,” says the mining veteran. “But unlike with mining it (farmed abalone) is not a diminishing asset.”

Given we already have listed salmon, oyster, prawn and tuna exposures, it was inevitable we would get one for abalone.

Formally, abalone may be known unappetisingly as reef-dwelling marine snails, but they’re one of the highest value piscatorial commodities.

One reason is they take at least three years to grow to a decent size.

Ocean Grown acquires juvenile green lip abalone from a land-based hatchery and grows them out in custom built artificial ranches called abitats.

These abitats (as in abalone ‘abitats) are 900 kg reef structures made from concrete and poly fibre. The abalone feed from algae captured from the ocean, nurtured by a team of divers.

“The farming area had the advantage of plenty of food, but without the reef system to support the abalone,” Harold says.

The company established its first 5000-abitat colony in Flinders Bay at Augusta in WA. It is constructing a second facility and also has consent for a second project at Wylie Bay at Esperance. The company also has a development venture at Port Lincoln in SA.

The funds will be used for these expansions, as well as a processing plant at Flinders Bay.

Established in 2011, Ocean Grown is seeking to raise $10m by issuing 40 million shares at 25c apiece, for a total market valuation of $42.7m

Broker Morgans underwrites the offer, which opened on Oct 6.

Under first stage, Ocean Grown has 1.5m abalone in place – or 121,000kg in all. Most will be harvested when they reach 80-100 millimetres (the legal limit of 140mm does not apply to farmed product).

In 2016-17, the company harvested 17,238kg – 1.5 million of the creatures -- at an average price of $147-160 per kilogram.

 Ocean Grown is tapping a theme of ever-increasing Asian demand at a time when natural supply is constrained.

Globally, the wild abalone catch has diminished from 20,000 metric tonnes in the1970s to 6500 m.t. in 2015. 

In comparison, farmed abalone (mainly land-based sea cages) accounted for 129,000 m.t. in 2015, with China producing 115,000 m.t.

Australia produces about 3500 kg of farmed produce (the green lip and black lip varieties combined).

Ocean Grown claims the land-based farmed produce is smaller and lacks taste. Its model also has green credentials because no power or inputs (such as extra nutrients) are involved.

Ocean Grown recorded revenue of $744,713 in 2016-17 and lost $1.54m.

In 2015-16 the company turned over $292,000 for a deficit of $1.32m.

Founder and CEO Brad Adams is a third generation abalone diver who previously founded Tasmanian Tiger Abalone (now Cold Gold Abalone).

Executive director Ian Ricciardi has been involved in the WA fishing industry since 1975, including ten years as chairman of the Shark Bay Prawn Association.

Now that’s got to count for something.

Otherwise, well ‘sea’ about this one: some piscatorial listings (such as Clean Seas Tuna and a number of barramundi plays) have been stinkers. Others such as Tassal Group and Huon Aquaculture (salmon) and Marratem (prawns, crabs and scallops) and Seafarms Group (farmed prawns) are swimming along OK.

Panoromic’s Harold is not the only Perth bizoid to succumb to the lure of the mollusc: a previous private raising by Ocean Grown attracted the support of former Wesfarmers CEO and now AFL supremo Richard Goyder.

Elanor Investors (ENN) $2.14

“Keep your hands off the koalas and no one will get hurt”.

That’s the message – of sorts – from the custodians of the Featherdale Wildlife Park at Doonside in Sydney’s west, which faces competition from the proposed $36m Sydney Zoo at the Western Sydney Parklands a mere three kilometres away.

Valued in the books at $39m, Featherdale is a valuable asset for Elanor, a property group otherwise covering more conventional assets such as hotels and warehouses.

Last month, the NSW Planning Assessment Commission (PAC) granted conditional approval for Sydney Zoo – overlooking Bungarribee Park – to go ahead.

Housing the biggest native animal collection in the country, Featherdale has operated for 43 years so it’s understandable that the owners would want to protect its furry turf.

Despite opposing the new zoo Elanor is happy – or grudgingly so – with the conditions that prescribe the scope and nature of the fauna the new zoo is allowed to display.

One of the conditions is that at least two-thirds of the Sydney Zoo’s exotic species collection is “present on opening”.

That’s to differentiate the new zoo – which will emphasise free-ranging exotic animals and a safari-like experience -- from Ferndale’s native-only offering.

Also, the new zoo must not include flying birds (Ferndale has ‘em) - but must include an aquarium, reptile house, insectarium and nocturnal house (because Ferndale doesn’t have ‘em).

Then we get to the koalas. For three years, no Western Sydney Zoo visitor is allowed to touch our furry emblem, unless they’re kids on an organised school trip.

Why? Ferndale offers the Personal Koala Encounter in which visitors can touch the beast – but only around the waist mind you – and be photographed.

It’s possible the new zoo will be a boon for Featherdale, creating a wildlife precinct in the same way the Village Roadshow and Ardent Leisure theme parks attract thrill seekers to the Gold Coast.

The good news for pouched marsupials who want to be unmolested is that Sydney Zoo is due to be up and running by 2018.

In the meantime, Ferndale has been a strong performer for Elanor, which upped the asset’s carrying value to $39m as at June 30 2017, compared with $15.6m a year earlier.

The 3.1-hectare park accounts for 25% of Elanor’s $159m investment portfolio, which also includes Cradle Mountain Lodge and John Cootes Furniture.

To assist its funds management and direct investing endeavours, Elanor last week launched an unsecured note five-year offering to raise $35-40m at a 7.1 per cent interest rate.

Founded by Grange Securities’ Glenn Willis in 2014, Elanor has a host of big-name backers including ex Macquarie Bank heavy Bill Moss. But as far as we can see, there are no zookeepers on the register.

Tim Boreham authors The New Criterion

Tim.boreham@independentresearch.com.au

Disclaimer: The companies covered in this article (unless disclosed) are not current clients of Independent Investment Research (IIR). Under no circumstances have there been any inducements or like made by the company mentioned to either IIR or the author. The views here are independent and have no nexus to IIR’s core research offering. The views here are not recommendations and should not be considered as general advice in terms of stock recommendations in the ordinary sense.