- Company raises £20.7m from new share issue
- Net debt has more than doubled
Benchmark (BMK) has shown signs of recovery after a difficult lockdown. However, the aquaculture and biotechnology group is investing heavily in new growth areas that have yet to bear fruit, while grappling with high costs and rising debt.
Over the past five years, Benchmark has repeatedly reported pre-tax losses. In 2020, trading was further hampered by Covid-19, which reduced global demand for shrimp and, by extension, Benchmark’s nutrition solutions. The company has now narrowed its loss before tax from continuing operations, however, and each of its three core businesses – Genetics, Nutrition and Health – have enjoyed rising revenues over the past 12 months.
Management described 2021 as a "year of investment". Capital investments totalled £23m, with £11.3m relating to established businesses. Many hopes have been pinned on sea lice solutions Ectosan Vet and CleanTreat which have launched in Norway, as part of the company’s health business. The group believes these businesses deliver a solution to one of the industry's "biggest sustainability challenges" and are at an "inflection point".
This may be true. At the moment, however, operating expenses make up 79 per cent of Health sales and have driven up the group’s overall operating costs, which have risen by 15 per cent year on year to £38.2m. Moreover, HSBC noted that while the messaging on CleanTreat remains good, there is still no mention of new orders.
As a result of Benchmark’s investment activities and greater working capital, net debt has increased to £80.9m from £37.6m last year. Meanwhile, its liquidity has decreased by £32.6m to £50.6m and cash at the year end stands below £40m, down from £71.6m in 2020.
It is also worth noting that the group's main borrowing facilities are set to expire within the next 19 months. The directors said they remain confident that the current facilities will be renewed or replaced in the next 19 months, but the requirement to do so represents a material uncertainty that "may cast significant doubt on the group's ability to continue as a going concern".
In order to fund further growth, Benchmark has raised £20.7m by issuing over 33m new ordinary shares. The group is also considering a listing in Oslo, as the world's largest seafood-focused market. HSBC said the group could have access to cheaper funding and benefit from greater awareness in the aquaculture community if the listing goes ahead. However, investors holding stock in a UK mandated fund could struggle with ownership issues. "A dual listing would perhaps solve this, but would potentially incur increased costs", the bank said.
It is an extremely busy time for Benchmark, and opportunities abound. However, its nascent sea lice businesses and historic losses create a lot of uncertainty for investors. And that doesn’t even begin to take into account supply chain disruptions and the rising cost of logistics. Hold.
Last IC view: Hold, 53p, 27 Nov 2020
|ORD PRICE:||63.9p||MARKET VALUE:||£450m|
|TOUCH:||62-64p||12-MONTH HIGH:||68p||LOW: 51.2p|
|DIVIDEND YIELD:||nil||PE RATIO:||na|
|NET ASSET VALUE:||38.6p*||NET DEBT:||29%|
|Year to 30 Sep||Turnover (£m)||Pre-tax profit (£m)||Earnings per share (p)||Dividend per share (p)|
|*Includes intangible assets of £229m, or 34.2p a share. Includes 33.1m new ordinary placing shares announced on 29 Nov 2021.|