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Benchmark in for a 'cash-burn' in 2020

The aquaculture group is scaling back non-core activities at a time when its core markets are softening
Benchmark in for a 'cash-burn' in 2020

A softening market, a 20 basis point reduction in the gross margin and a £44.8m impairment of intangible assets explains why the share price of Benchmark (BMK) headed south on release of its full-year figures. The aquaculture group registered a net operating cash outflow of £9.21m, against negative £3.74m in FY2018, which was largely a consequence of increased receivables and a rise in inventories.

IC TIP: Hold at 43.5p

It may be a while before the group’s end markets turn around. In common with the broader agricultural sector, prices in aquaculture oscillate in accordance with demand levels and price levers. High prices increase production incentives, which, in turn, often result in oversupply and falling prices. The shrimp market is suffering from something of a glut.

It is difficult to avoid this loop, but Benchmark has priorities beyond day-to-day trading in 2020, with restructuring measures under way and disposals in the offing. Regulatory approvals are high up on the agenda, as management has been frustrated by longer timescales than anticipated in the development of [the group’s] sea bass/sea bream vaccines, and in establishing the commercial trials of certain pipeline products, which had an impact on revenues and on the expected timing of commercial launch of certain products. 

The year saw significant changes to the group’s senior management team, a consequence of which is that bosses intend to take a more measured approach in their appraisal of production development – in other words, the time to market. Better to underpromise and overdeliver than the other way around. Management now expects that the first vaccine for the sea bass/sea bream market will be launched in the first half of 2020. 

House broker Numis is guiding for an earnings loss of 0.7p a share for the September 2020 year-end, narrowing to 0.1p the following year. 

BENCHMARK HOLDINGS (BMK)  
ORD PRICE:43.5pMARKET VALUE:£243m
TOUCH:43-44.5p12-MONTH HIGH:60pLOW: 35.5p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:54.4p*NET DEBT:28%
Year to 30 SeptTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201544.2-11.4-6.00nil
2016109-22.4-4.40nil
2017140-8.10-1.40nil
2018 (restated)132-8.46-0.03nil
2019127-73.3-13.3nil
% change-3---
Ex-div:-   
Payment:-   
*Includes intangible assets of £276m, or 49p a share