Buy into Benchmark’s fish fuelled growth

Enter Benchmark (BMK) – the Aim-traded producer of nutrition, breeding and health products for the global aquaculture (fish farming) industry. With seven large-scale production facilities, 1,435 customers in 70 countries and a pipeline of 70 products, it is ideally placed to benefit from the surge in fish farming. That global demand prompted a 13 per cent increase in like-for-like revenues in the 2017 financial year. Sales rose 22 per cent with acquisitions which included INVE – a nutrition business which boosted the feed division to 58 per cent of Benchmark’s top line. Meanwhile, the group’s product-development pipeline, if successful, has forecast peak sales of £707m.

Since its inception in 2000, Benchmark has been in ‘investment mode’, which means it is yet to turn a profit (the profit numbers in our table exclude amortisation which was a hefty £18.5m last year). In 2017, management ploughed nearly £40m into research and development (R&D), manufacturing facilities and breeding sites across its global facilities.

That said, as revenue accelerates, losses are narrowing. And it's worth noting the company accounts for most of its R&D (£13.1m of £15.2m last year) as a profit-sapping cost, rather than avoiding the impact on the bottom line by recording more spending as a balance-sheet asset. What's more, Benchmark has reported positive adjusted cash profit (Ebitda) since 2016 and broker Numis forecasts a compound annual growth rate of 25 per cent between 2017 and 2020, taking cash profit from £10m to £24.7m. Meanwhile, year-end net debt is forecast to peak in 2019 at £62m compared with £24m in 2017.

Progress should be helped by the recent completion of investment in a £17m commercial scale vaccine manufacturing site in Braintree, while its facility in Norway can deliver disease-free fish eggs all year round and expects to reach its peak annual capacity of 150m eggs by 2019. Long-term commercial agreements with SalMar, Manit Farm and Great Salt Lake Brine Shrimp Cooperative give greater reliability to the revenue.

Scientifically, there is also plenty of excitement. In 2017, Benchmark started field trials into a disease-resistant strain of shrimp and was selected to be part of a collaborative project researching genetic illness in salmon. It also launched a new probiotic to enhance growth in shrimp and a water purification system.

But a word of warning for prospective investors. The high incidence of disease makes fish farming a risky industry and Benchmark’s share price has been hurt before by poor market conditions in Chile and Norway. And as with all biotech companies, Benchmark is reliant on positive trial results from its product pipeline.