We are being encouraged, as a society, to choose a more plant-based diet to combat the effects of global warming. ‘Meat-free Mondays’ are still in the experimentation stage in this outpost of The Armchair Trader empire. However, the animals that we eat do have an impact on the environment, not only from the emissions from their digestive bi-products, but also in the energy, land and water needed to grow their mainly grain-based processed food.
A new addition to the Alternative Investment Market, Ocean Harvest Technology Group [LON:OHT], believes that its has the solution to some of the problems associated with the global livestock industry.
Based in Theale, Berkshire, with operations in Vietnam, the company produces animal feeds from seaweed, primarily harvested in South East Asia. The company has been around since 2005 and its products are used to feed swine, ruminants, poultry, horses, in aquaculture and petfood.
Sustainable, environmentally-friendly food supplements
Ocean Harvest only listed on AIM on 4th April this year, raising gross proceeds of GBP6m, so in terms of public pronouncements there isn’t a lot to tell. Most retail investors wouldn’t have heard much of Ocean Harvest, which is understandable given the comments of Mark Williams, Ocean Harvest’s CEO, in a presentation this morning, (12th September) who said: “The IPO has mostly been sold to institutional investors, post-IPO we’ve been targeting more retail investors,” so that might change soon.
- Michelmersh navigates UK construction slowdown brick-by-brick
- Tandem rides to profit: revenue up 11% despite weather woes
- Wellnex IPO: A shot in the arm for struggling UK junior market
Just like the kelp the company uses in its products, Ocean Harvest has been growing rapidly and it markets its products as a sustainable, environmentally-friendly food supplement that can improve the health and performance of livestock. The company’s seaweed blends contain a variety of nutrients and bioactive compounds that are beneficial for animals. These compounds can help to improve animal growth, feed efficiency, and immunity. The company’s products have also been shown to reduce the environmental impact of animal agriculture.
Ocean Harvest listed at a price of 16p, giving the company a market cap of around GBP20m. The shares opened today at 13.5p, which would have given shareholders a -15.6% return. But it’s early days for the stock and within a few weeks of listing it had risen to 26p. Early trading is bound to be volatile, and investors should be looking at buying and holding the stock for three-to-five years.
The management team, who are fairly new, have been prioritising R&D which Williams said “…was to support our potential target customers in their efforts to trial the products and see the [health, growth rate and feed efficiency] benefits in their systems before buying the product.”
“And,” he continued, “conducting our own R&D to demonstrate additional applications and benefits of the product.” The IPO money is in-part being utilised to do full life-cycle trials in a number of animal species.
Williams only joined Ocean Harvest in February 2022 and was into insects before he started growing seaweed, as CFO of Insect Technology Group (ITG), a company that raised black soldier fly, which compost food waste and are then harvested for animal feed.
However, ITG went into administration in February 2021. The company’s administrators, UHY Hacker Young, said that the company had been struggling financially for some time due to a number of factors. The administrators said that they were working to find a buyer for the company’s assets, but they were unable to find a suitable buyer. As a result, the company’s assets were liquidated, and the company ceased trading.
Proprietary formula to stand it apart
ITG found the insect protein market very competitive with high costs and that was part of the problem. Ocean Harvest will find the same issues – seaweed is not hard to grow, you can pick it up for free in most oceans. So, the USP of the product is the blending and mixing and processing, a bit like Kentucky Fried Chicken – there’s a lot of chicken shops, but KFC has become a global brand through its magical mix of 11 herbs and spices. Ocean Harvest is hoping that its proprietary formula will help it stand apart from other seaweed-based animal food supplement manufacturers and become the KFC of marine algae.
It’s a big pie – the animal feeds sector is worth around USD500bn annually and of that the additive/supplement space is a USD40bn a year market. The company is looking a B2B marketing into the nutrition and procurements departments of global animal feed manufacturers. The aim is to get partnerships running with these multinationals and locking in the company to these clients to give clear visibility of sales. The majority of its marketing efforts have been directed towards this client space, building up international teams and developing relationships.
The other use that the IPO money has had is in securing Ocean Harvest’s supply chain, and the company has been scouring the oceans to secure growers “to diversify the supply chain and increase the biomass that we can buy,” said Williams. Ocean Harvest recently started sourcing seaweeds from East Africa and the Republic of Ireland.
Ocean Harvest Technology collects wild-farmed seaweeds
Ocean Harvest’s R&D has found its special blend of nutrients and bioactive compounds can improve animal growth, feed efficiency, and immunity and some farmers are using the seaweed supplement as a pre-biotic alternative to antibiotics. Primarily Ocean Harvest collects wild-farmed seaweeds, as opposed to cultivated seaweed.
The company released its first Interim Report since listing today. On top of the GBP6m IPO, the company reported that it had seen a 66% growth in revenue, when compared to 1H22, hitting EUR1.6m (GBP1.4m), coupled with a 150% increase in gross margins to EUR0.56m, driven by increasing the price it was charging for its seaweed, and lowering its cost and yield of production. The company secured ten new customers in the period and increased volumes of product shipped with volume growth at around 40% per annum. The company has no debt and a bank balance of EUR4.8m up from EUR1.2m at the start of the year.
However, the company is still nowhere near profitability. In the six months to end-June 2023 Ocean Harvest made a loss of EUR2.2m, up 71% from the loss for EUR1.3m it made for the first six months of 2022. One of the biggest downside contributors has been staff costs, according to Andy Cox, interim CFO, speaking this morning, who said since July 2022 the company has paid out higher salaries, bonuses and has had share option costs after the IPO, which in itself was an expensive undertaking at EUR750,000. It has also been building up its seaweed inventories as well as finished and semi-finished stock.
The company is guiding that it will be expecting total revenue for the year of not less than EUR3.4m with a trial pipeline of more than EUR10m.
Sustainability is a key part of Ocean Harvest’s offering. Although not a finite resource, seaweed is plentiful and easy to cultivate, moreover the carbon emissions of one tonne of seaweed compared to cereals and soybeans when cultivation, transportation and processing is taken into account, is significantly lower than other animal feeds, and when in vivo the target species, produces less greenhouse gas emissions than the alternatives, making seaweed a much less carbon-intensive food source for agriculture. The seaweed species that Ocean Harvest utilises contain compounds called bromoform and iodoform, which are thought to be responsible for a methane-reducing effect in animals. Moreover, the species it harvests from the wild are invasive, caised by run-off from land-based pollution, said Williams, and are growing quickly in the areas it gathers from – so is a bit of a problem to the local flora and fauna, as well as the people who live nearby. Wild collection is also in dollar terms cheaper per tonne than cultivated seaweed.
Seaweed for carbon capture
A big part of the lower carbon footprint is that Ocean Harvest uses no arable land, fresh water, or fertilisers in sourcing its feedstock. Moreover, seaweed is a carbon sink – in that it is one of the best plants for absorbing carbon, taking it out of the atmosphere. In addition, seaweed is a good source of vitamins and minerals, which can help to improve the health of livestock. This can lead to reduced antibiotic use, which is another environmental benefit.
Ocean Harvest is an early-stage investment – albeit in a company that has been around 18 years. The company is still in its initial stages of development and investing heavily in R&D. The company is still finding out what the seaweed it harvests can do, and is not yet in the territory to make any significant revenues.
New products take some time gain market traction, especially in a global industry like animal feed dominated by multinationals with historic relationships (and arrangements) with feedstock-suppliers and tried-and-tested recipes. This is why presumably Ocean Harvest is investing so much in its trial programmes.
Investing in this company has its risks.
They are not the only company in the seaweed game and barriers to entry are not insurmountable. Their existence is very much based on the science and the top-tier of the animal feeds industry is a hard nut to crack. Although the need to produce more food has demographic pressures, the big players in the industry have their product and have their customer base, so have no pressing need to change their operations and experiment with new ingredients from small companies with an experimental product. Pressure could come from the feed manufacturers’ client base, but the big deciding factor is will Ocean Harvest’s products help them save money, or give them the opportunity to make more money?
Ocean Harvest Technology offers intriguing prospects
That said, the company’s profile and raison d’être is intriguing. People aren’t going to change from a meat-based diet or start consuming other types of protein like insects or lab-based cultures any time soon, so reducing the impact that meat has on the planet is a good thing. Also increasing the welfare of meat sources by improving health and vitality and reducing antibiotic use is also a beneficial objective – which in time might attract higher levels of sustainability-led multilateral funding.
Ocean Harvest is servicing an enormous industry, which badly needs to improve its productivity and sustainability, and by using some of Ocean Harvest’s feeds – if the research is to be believed – it can help the industry move closer to addressing some of the issues in the global food chain.
If the company can make an impact, it could very quickly see its share price appreciate significantly in value. They become ‘one to watch’ but should be bought and held over the longer term giving the company the opportunity to develop its proprietary technology, build relationships with feed producers, develop its business, and start generating sustainable revenues.
