Join our community of smart investors

Benchmark sweats on hospitality bounceback

Trading is improving although the demand outlook in key areas is far from settled
Benchmark sweats on hospitality bounceback
  • Uncertain demand for some of its products
  • A strong outlook for salmon egg sales

Restaurants have barely recovered from the pandemic and they now have a cost of living crisis to contend with. Whether households will cut back on dining out remains to be seen – but with UK consumer confidence falling for the fifth consecutive month, the signs are not encouraging. This is bad news for shrimp farmers, among others, who depend on the hospitality industry for some 60 per cent of their sales.

While Benchmark (BMK), the aquaculture and biotechnology firm, has largely shaken off the impact of Covid-19, it is still facing a future of uncertain demand for some of its products. The company’s half-year results do show evidence of positive momentum, with each of its three divisions (genetics, animal health and advanced nutrition) contributing to an overall revenue increase of 33 per cent on the 2021 interim.

The rollout of Benchmark’s sea-lice solutions, Ectosan and CleanTreat, contributed to a 358 per cent increase in revenues for its health business, enabling it to slip back into the black on a cash profit basis. It recorded a loss of £2.6mn for the first half of FY2021. The Norwegian Medicines Agency recently granted a “variation” to its marketing authorisation for Ectosan, enabling producers to re-use treatment water for an additional batch of fish. This means salmon farms can be treated for sea lice, which affect a fish’s appetite and growth, more efficiently.

But it was the advanced nutrition division that was responsible for 53 per cent of the company’s £79.2m half-year revenue – and this is the part of the organisation most exposed to volatility in global shrimp markets.

Cash sat at £46.3mn, an improvement on the £39.5m figure logged at the full-year mark, if still below the £53.6m it logged for the 2021 comparator. The company has also continued to report statutory losses, and its main borrowing facilities are notably due to expire in 13 months. Its directors say they’re confident these facilities will be renewed prior to their expiration, although it’s worth noting that without the proceeds of share issues, Benchmark would have registered a £14.7mn decrease in cash/cash equivalents through the period.

Benchmark believes it will trade in line with market expectations for the remainder of the year, citing a strong outlook for salmon egg sales and a “healthy” outlook for its advanced nutrition business. If market conditions are favourable, the company will likely list on the Oslo Stock Exchange later this year. But given inflationary pressures and continued warnings of a recession, this looks like an increasingly precarious 'if'. Although there is potential share price upside of 37 per cent based on the FactSet consensus broker target price, we think caution is warranted. Hold.

BENCHMARK HOLDINGS (BMK)  
ORD PRICE:45pMARKET VALUE:£315mn
TOUCH:44-45p12-MONTH HIGH:66pLOW: 39p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:42p*NET DEBT:27%
Half-year to 31 MarTurnover (£mn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
202159.5-3.25-0.57nil
202279.2-5.14-1.32nil
% change+33---
Ex-div:-   
Payment:-   
*Includes intangible assets of £227mn, or 32p a share.

Last IC view: Hold, 63.9p, 29 Nov 2021