Zacks Initiates Coverage on Umami Sustainable Seafood Inc. - Analyst Blog
03 February 2012 - 11:42PM
Zacks
Zacks Initiates Coverage on Umami Sustainable Seafood
Inc.
Ian Gilson, CFA
- Headquartered in San Diego, California,
Umami Sustainable Seafood Inc. (UMAM.OB
$2.50) is the global leader of high quality bluefin tuna
for the high end Japanese sushi and sashimi market. The Bluefin
Tuna market is estimated to exceed $1 billion with the Japanese
market consuming 80% of the total.
- The company aquafarms tuna at two locations,
Ugljan Islands, Croatia (Northern Tuna) in the Adriatic Sea and
Coronado Islands, Baja, Mexico (Pacific Tuna) in the eastern
pacific, with a combined capacity of over 15 million pounds (7000
metric tons).
- There are quota restrictions on catching
Atlantic Tuna and these are being reduced each year. The farmed
tuna grow faster than do the wild tuna (since more food is
available), gain weight quicker (and so command a higher market
price). Farmed tuna is replacing wild caught fish.
- The tuna are kept and fed for about 3 1/2
years. A 10 Kg tuna will grow to over 100 Kg during this
period.
- The Kali facility has a successful breeding
program that has released tuna eggs and larvae into the Adriatic
sea each year over the last three years.
- Umami has positive EBITDA and positive cash
flow on an annual basis. This will allow the company to pay down
debt and potentially acquire facilities and/or fishing
licenses.
When the tuna are captured they are undernourished so they
double their weight in the first 6 months and then every 12 months
afterward. When the fish are over 60 kg they are harvested, frozen
and sent to Japan in specially made freezer ships.
Current breakeven revenue is about $55 million a year. At that run
rate all operating expenses and the current level of interest
expenses are covered. The company has a gross profit margin of over
50% so that pretax income will build rapidly as revenue
increases. The Baja operations have a lower cost structure (bait
fish are more plentiful) so as Baja grows gross margins will
expand.
We are rating the stock as OUTPERFORM with a price target of $60.00
a share.
To view a free copy of our most recent research report on
UMAM or subscribe to our daily morning email alert, visit
http://scr.zacks.com/.
UMAMI SUS SEAFD (UMAM): Free Stock Analysis Report
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