Going fishing

Like the ebb and flow of ocean currents, fishing companies are inherently cyclical. Though there are several layers to that, the key driver is catch rates — the volume of fish caught per unit of effort. This is the single most important metric for listed operators and can shift with environmental conditions, fish behaviour and changing ocean dynamics.

As Sea Harvest CEO Felix Ratheb tells the FM, the impact on unit economics is profound. “If I go fishing, I’ve paid for the fuel and maintenance, I’ve paid the people. If I catch 10t a day or 14t, it’s the same cost. However, with 10t, the cost per kilo is 40% more.”

In strong years, when environmental conditions and fish behaviour align, profitability can expand rapidly. In weaker years, the reverse is true, even if the fish stock itself remains healthy.

That distinction is important. In South Africa, the hake resource — the most economically significant species for the listed players, accounting for as much as 80% of the wild-caught fish along the South African coast — is widely regarded as well managed and biologically robust. It’s around 30% above the level associated with maximum sustainable yield — the point at which catches can be maintained without depleting the stock.

Even with a healthy biomass, however, catchability can vary. Warmer water temperatures, for example, can push hake higher in the water column, beyond the reach of bottom trawling gear. The fish are still there, but in effect unavailable. This introduces a variability that is difficult to hedge or predict, reinforcing the sector’s cyclical earnings profile.

Hake catch rates at Sea Harvest were strong in 2025, driving record profits, and early 2026 is tracking broadly in line. As Ratheb puts it: “We had 10 years of stability in catch rates, and then we had three years of very poor catch rates. One reason was bad weather. On average, I’d say you have about 40 days a year that you can’t go fishing. Those three years, it hit almost 100 days.”

Fellow JSE-listed operator Oceana Group has also seen a marked improvement in hake catch rates, even though hake is a relatively small part of its business. CEO Neville Brink notes that “as an industry, we’ve experienced a massive upturn in catch rates from the second half of 2025, by around 42%. There’s definitely an upward trend in southern hemisphere catch rates.”

Simon Crutchley, CEO of AVI Ltd, which owns seafood business I&J, struck a more cautious tone. Speaking at the group’s interim 2026 results, he noted that “short-term hake catch rates are still pretty sporadic and lower than where they need to be”, adding that the company is looking for a more sustained recovery back to historical levels. Pressed during the Q&A on the apparent discrepancy between I&J and Sea Harvest’s catch rates, Crutchley declined to elaborate, saying: “I do know why, but I’d prefer not to say.” The remark probably points to internal operational factors, suggesting scope for improved execution.

With about 60% of South African hake production exported, international pricing has also been supportive, largely a function of global white fish supply. Quotas for cod, the benchmark premium species, have fallen by almost 50%, creating a supply gap of roughly 500,000t in Europe, the world’s largest white fish market.

“The market has been very strong in terms of demand,” says Brink. Earlier tightness was driven by sanctions and levies on Russian exports, a major source of white fish, and has since been compounded by the decline in cod.

On whether a recovery in cod supply could temper prices, Ratheb is sceptical. “Cod takes five years to grow. It’s a slow-growing fish, and it’s a big fish. So I think this is now structural. I think we’re looking at a five-year period where we’re going to have a supply gap.”

Fuel is another key swing factor, accounting for roughly 15% of operating costs, though large players manage this exposure through selective hedging. Heading into 2026, expectations of softer prices resulted in Sea Harvest hedging only about 35% of its fuel needs at around $60 a barrel, while Oceana was more conservative, hedging roughly 70% of fuel costs for its wild-caught seafood segment.

The Middle East-driven spike in oil prices was not expected. Even so, most operators downplay its significance, noting that it is less critical than core drivers such as catch rates. A sustained rise in fuel costs would weigh on margins, but some of the impact could be passed through to customers over time. For now, oil futures suggest the disruption is likely to be short-lived, with any pressure on fuel costs confined to the near term.

Overlaying these operational cycles is a longer, and arguably more consequential, regulatory cycle: the allocation of fishing rights. In South Africa, commercial rights are granted through the fishing rights allocation process (Frap), typically for about 15 years. These rights confer a share of the resource and underpin the economics of the industry.

Their duration is critical. As companies approach the end of an allocation cycle, uncertainty rises. There is no assurance that rights will be renewed on the same terms, or at all, with obvious implications for capital allocation, financing and valuation.

As Ratheb puts it: “You can imagine that shareholders are not very keen to go and spend R400m on a ship three years out before you’re getting your fishing rights allocated. It’s a high risk.”

The predictable consequence is deferred investment and, over time, ageing fleets and processing infrastructure.

This stands in contrast to jurisdictions such as Australia, where fishing rights are often granted in perpetuity, effectively creating a form of property rights. That allows quotas to be treated as long-term assets — tradable, bankable and capable of being used as collateral. The result is greater balance sheet flexibility, lower perceived risk and more willingness, from managements and lenders, to fund long-term investment.

In South Africa, by contrast, investment tends to follow regulatory certainty. “Only once the rights allocation process was over, and we had some certainty in terms of rights, did we invest heavily in our South African plants,” says Brink.

Since allocations were finalised in 2022, reinvestment has been gradual, constrained by capital, even though the benefits are clear. Newer assets are more efficient and reliable, and better able to fully utilise quotas. As Ratheb notes, “they break down less and you have the capacity to catch your allocation” — with clear benefits for the bottom line.

However, getting fishing rights does not guarantee a fixed volume of catch. This is where another layer of regulation comes into play: the total allowable catch (TAC). The TAC represents the total volume of a particular species that may be harvested each year without compromising long-term sustainability. A company’s quota is simply its percentage share of this TAC.

The TAC itself is derived from a combination of scientific surveys and industry data. Government-led research surveys — often conducted by dedicated vessels along the South African coastline — aim to estimate stock abundance and composition, while industry submissions, including catch-per-unit-effort data, provide real-time insight into fishing conditions and productivity.

These inputs are processed through statistical models to arrive at a sustainable harvest level, guided by the principle of “taking the interest, not the capital” — harvesting the natural growth of the stock without eroding its long-term base.

The market has been very strong in terms of demand

—  Neville Brink

The system is not without friction. Survey vessels are not always available due to resource constraints in government, and delays in data processing can lead to late TAC announcements, as was the case in 2026.

These delays are particularly problematic for pelagic fisheries. Unlike hake — a longer-lived, deep-water species with relatively stable biomass and TAC — small pelagic species such as sardine and anchovy are short-lived, fast-growing and highly sensitive to environmental conditions, with stocks that can shift dramatically from year to year.

As a result, their TACs are far more volatile. Over the past decade, anchovy TAC has ranged from around 450,000t to just 35,000t in 2025, while pilchard TAC has fluctuated between roughly 83,000t and as low as 12,000t. Swings of this magnitude make planning extremely difficult.

Against this backdrop, diversification becomes critical. If the first thing investors learn about fishing companies is that they are cyclical, the second is that spreading exposure across species, geographies and value chains is the most effective defence against that volatility.

Oceana offers one of the clearest examples on the JSE of this approach, having evolved from a traditional wild-catch operator into a broader seafood and marine ingredients platform. Its earnings are driven by a mix of branded consumer foods, export seafood and globally traded fishmeal and fish oil, effectively creating a portfolio of businesses that peak and trough at different points in the cycle.

Its recent financial performance highlights both the strengths and variability of this model. For the year to September 2025, revenue was broadly flat at around R10bn, while operating profit declined by roughly 19% as fishmeal and fish oil margins normalised from unusually elevated levels the year before. Even so, the group remains resilient and cash-generative through the cycle, with stronger volumes across several segments helping to offset softer pricing.

At the core of Oceana’s resilience is Lucky Star pilchards, one of South Africa’s best-known food brands and a rare example of a fishing company with meaningful exposure to fast-moving consumer goods, contributing around 40% of operating profit. Built around affordability, long shelf life and nutritional value, the brand tends to hold up well even when consumers are under pressure.

As Brink notes: “Lucky Star consumers spend 30% of their disposable income on food and we compete in the broader protein market. So price is key.”

The move into related categories such as canned meats, value-added seafood and other long-life protein products — with nonfish products now accounting for about 9% of total sales volumes — along with ongoing efficiency improvements, has helped support margins. This provides a useful buffer for Oceana against the more volatile commodity-driven parts of the business.

That counterweight is particularly valuable given the scale of the marine ingredients business, where Daybrook in the US also contributes roughly 40% of operating profit. Earnings in this segment are closely tied to global fish oil prices, which are heavily influenced by anchovy catches in Peru — source of more than a third of the world’s fish oil and fishmeal. In the prior financial period, poor fishing conditions in Peru constrained supply and drove a sharp increase in prices, materially boosting profits, before improved catches led to a subsequent easing in prices.

Despite this volatility, the operational performance has remained solid, with sustained demand from aquaculture and animal feed markets continuing to underpin the outlook. Brink points out that “about 91% of fishmeal and 64% of fish oil is used in aquaculture, where it’s very difficult to substitute in the diets of farmed species”.

Oceana’s African wild-caught seafood segment adds further diversification, with exposure to hake, pelagic, squid and lobster.

We had 10 years of stability in catch rates, and then we had three years of very poor catch rates

—  Felix Ratheb

One risk, however, is the growing political pressure on menhaden fishing in Louisiana. Recreational anglers and environmental groups are pushing for tighter restrictions, including potential caps on annual catches, despite scientific evidence that the stock remains robust. (Menhaden is a small, oily-fleshed pelagic fish that Daybrook catches and processes into fishmeal and fish oil.)

Oceana shares trade on an undemanding earnings multiple of about 10 with a dividend yield of roughly 5%, suggesting the market already prices in a degree of cyclicality.

The other major JSE-listed player, Sea Harvest, has evolved from a primarily South African hake business into a broader seafood platform spanning pelagic fisheries, international operations, aquaculture and, until recently, a meaningful food manufacturing arm. While this diversification is evident at a revenue level, it is far less apparent in the earnings mix.

South African hake still dominates, contributing roughly 82% of operating profit, while South African pelagic accounts for about 17% following the 2024 acquisition of West Point Fishing, which included the Saldanha canned fish business. By comparison, Australia contributes around 5%, the loss-making aquaculture segment a negative 5%, and the Cape Harvest Foods Group, excluding Ladismith Cheese, just 1%.

The sale of the Ladismith dairy operations for about R840m, expected to close before end-June, marks a clear strategic pivot. While the business provided some earnings stability, it was never a particularly strong performer. It also diluted Sea Harvest’s focus as a seafood operator and tied up capital that could be better deployed within its core marine portfolio.

More importantly, the transaction will further strengthen the balance sheet, with net debt to ebitda expected to fall from around 1.3 times to about 0.9. Combined with lower capital expenditure, this could support a more generous dividend policy.

Sea Harvest International, largely centred in Australia, provides geographic diversification and exposure to species including prawns, scallops and crab. While still a relatively modest contributor at around 17% of group revenue, it offers an additional growth avenue and some insulation from South African resource cycles.

Performance has, however, been affected by environmental volatility, including marine heatwaves and fluctuating catch volumes, with returns to date lagging behind expectations. Ratheb notes that prawns and scallops are less mobile than fish and so more vulnerable to warmer water temperatures, though this is partly offset by their faster growth rates.

The Australian operation’s net debt accounts for roughly 50% of the group total but is ringfenced within the offshore operation. A footnote to the 2025 financial statements states that a devastating cyclone struck on March 28 2026, an event expected to affect operations and results for the 2026 financial year. At the time of writing, the full extent of the damage has yet to be disclosed.

Aquaculture, focused on abalone, contributes a modest share of revenue but has a different risk-return profile. It allows for more control over production than wild catch, but still carries biological risks and is highly exposed to demand from China. Recent weaker abalone pricing shows that, while aquaculture adds diversification, it does not remove earnings volatility, though it does offer upside if demand recovers.

As Ratheb explains: “South African abalone is incredibly expensive. It’s like the Wagyu or Kobe beef alternative, something you use at weddings or special occasions. [With the downturn in Chinese consumer sentiment], they haven’t stopped buying abalone, they’ve just traded down to Chinese abalone.”

Sea Harvest’s pelagic division arguably offers the most scope for growth within the group. About half of the segment is in canned fish, where pilchards are processed and sold under the Saldanha brand, No 2 in the local market behind Lucky Star. The other half is anchored in anchovy, which is processed into fishmeal and fish oil, with most volumes exported to Europe and linked to global pricing.

Pricing dynamics have recently turned strongly positive, with fishmeal and oil prices up around 30%, driven by constrained supply from Peru and tighter quotas in the North Atlantic. However, the key swing factor remains the TAC.

On a trailing earnings multiple of four, Sea Harvest trades at a material discount to global seafood peers and less than half the multiple of Oceana, suggesting the market is assigning a cautious outlook to the earnings base.

That valuation gap may help explain why shareholder Brimstone Investment Corp opted to reduce its Oceana exposure rather than its Sea Harvest stake, effectively retaining its position in what appears to be the more attractively priced asset. That said, the larger value of the Oceana holding, along with its greater international footprint — where empowerment credentials are less relevant — probably also influenced the decision.

Compared with Oceana’s significant contribution from Lucky Star, Sea Harvest is arguably a purer fishing play, with correspondingly greater sensitivity to industry cycles, particularly following the disposal of Ladismith. With a smaller international presence, the group is also more exposed to local quota allocations and underlying resource conditions.

An alternative to direct exposure to Oceana and Sea Harvest is empowerment holding company Brimstone, often seen as a proxy for the JSE-listed seafood sector. Its stakes in the two companies account for nearly three-quarters of its gross portfolio value. Sea Harvest is the largest contributor to earnings, while Oceana remains a significant asset despite a partial stake reduction in December 2025. Importantly, Brimstone’s shareholding supports the broad-based BEE (BBBEE) credentials of both companies, a factor with strategic relevance in the context of fishing rights and quota allocations.

The disposal of Oceana shares to Marine Edge Capital — a vehicle that is 51% BBBEE owned and includes offshore investors — reduced Brimstone’s stake from around 25% to about 16%, now valued at about R1.2bn. The group continues to hold about 44% of Sea Harvest, worth around R1.5bn, keeping seafood firmly at the core of its investment case.

Brimstone trades at a steep 50% discount to its intrinsic NAV. While such discounts are not uncommon among investment holding companies, they are typically associated with portfolios dominated by unlisted assets, where price discovery and liquidity are more limited.

For investors comfortable with the dual share structure — the more liquid N ordinary shares are nonvoting — and some balance sheet leverage, the persistent discount offers a potential margin of safety.

Two other fishing companies are worth noting.

Premier Fishing & Brands delisted from the JSE in 2023 after minorities were bought out by Iqbal Survé’s Sekunjalo Investment Holdings. It is a diversified black-owned fishing and aquaculture group with operations spanning pelagic fishing, lobster, squid and abalone farming, as well as fish processing and cold storage, with exposure to domestic and export markets.

AVI’s I&J represents a different model — a long-established seafood business operating within a broader branded consumer group. Best known for its premium Cape hake products, I&J operates a vertically integrated model that includes fishing vessels, processing facilities and strong export channels, particularly into European markets. The business has long emphasised product quality, sustainability and value-added processing, positioning itself as a premium seafood supplier rather than a volume-driven operator.

Taken together, South Africa’s fishing sector presents a classic cyclical investment case, where timing and valuation matter as much as underlying quality. Long-term share price performance for both Oceana and Sea Harvest suggests sentiment is currently subdued, with muted returns over five- and 10-year periods.

There is, however, a supportive structural tailwind in the form of the 2022 Frap, which has reset the regulatory cycle and provided operators with visibility over quota allocations for the next decade or more.

Against this backdrop, and with earnings multiples remaining modest, the sector appears closer to the trough of its cycle than the peak — though inflection points are obvious only in hindsight. Entering at “low tide” may reduce entry risk, but it does not eliminate it, given the inherently volatile nature of earnings.