Clearwater Seafoods Incorporated

Product Innovation and higher Customer Satisfaction to Drive Higher Margins: Clearwater Seafoods Incorporated (TSE: CLR) is one of the North America’s largest vertically integrated harvester, processor and distributor of premium seafood. The company is a leading global provider of wild-caught shellfish with harvesting operations in Canada, Argentina and the UK.

Key Highlights and Outlook:

• The company’s vertical integration, significant shellfish quota, licence holdings and global sales force to make the group as an industry leader in shellfish with sustainable competitive advantages. Investment in research and development, technology and intellectual property is likely to strengthen the position further.

• The group is focusing on expanding the supply of the core species along with the other seafoods which are high in demand, wild and sustainably harvested and premium in nature. This is likely to be done via improved utilization along with long term supply agreement, improved supplier relationship and strategic decisions such as acquisitions, joint ventures and partnerships. 

• The group is targeting growing markets, buyers, channels and customers depending on size, viability, demand for eco-label seafood to drive the growth. The group will focus on innovation and better product offering, which would lead to the growth in the near to medium term.

FY19 Financial Highlights: CLR declared its full-year results, wherein the company reported sales of CAD 616.24 million, up 4.1% on y-o-y basis. The increase is attributed to the sales growth of 6% and 7% in Europe and Asia, respectively. Sales in Europe benefited from favorable sales mix for scallops and available supply of scallops and langoustines while the expansion of distribution channels and market demand for clams aided the growth in Asia. Adjusted EBITDA stood at CAD114.90 million, as compared to CAD104.39 million in the previous financial period. EBITDA margin on an adjusted basis stood at 18.6% vs 17.6% in FY18 on account of strong harvest conditions and favorable sales mix tilted toward higher-margin species. Net earnings stood at CAD 52.84 million, as compared to a loss of CAD 3.71 million in the previous financial year.

Income Statement Highlights (Source: Company Reports)

Valuation Methodology: EV/Sales - Based Relative Valuation

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of CLR is quoting at CAD 4.68 with a market capitalization of CAD 304.8 million on 24 March 2020 closing. The 52-weeks low and high of the stock stood at CAD 3.83 and CAD 6.18. The stock has generated a negative return of ~11 % and ~16% in the last one month and three months but outperformed the benchmark index by ~24% and ~15% during the same periods. The seafood industry is co-related with global demand for premium wild-caught seafood among aging boomers and rising middle class. Within the Asia-Pacific region, the demand is outpacing resource supply creating powerful industry fundamentals. The above factors are contributing toward the creation of new business prospects which would lead to the rising demand for high-quality sustainable seafood. The company is likely to pay attention towards lower costs and higher value species, which in turn would result in margin expansion. We have valued the stock using EV/Sales based valuation method. We have taken peers like High Liner Foods Inc (TSE: HLF), Alcanna Inc (TSE: CLIQ), New Look Vision Group Inc (TSE: BCI) etc. and arrived at a target price of double-digit upside (% terms). Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 4.68 as on 24^th March 2020.

CLR Daily Technical Chart (Source: Thomson Reuters)

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