New contracts may boost fish-oil refiner's earnings

HAMISH MCNICOL
Last updated 05:00 12/08/2014

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Fish oil company SeaDragon's prospects have "increased significantly" in the past few months, research firm Edison says.

But a reliance on fish still needing to be caught and deliveries made remains a risk, with SeaDragon having a history of under-delivery.

The listed Nelson-based company said in June it had secured a second major sales contract that would boost annual revenue to at least US$6 million (NZ$7.08m).

Edison yesterday released a report on SeaDragon, Australasia's largest refiner and blender of fish oils, that said the company was set for rapid earnings growth.

SeaDragon said in March it had signed a deal with Portuguese company Pescarias Cayon & Garcia LDA that would cover its raw-material supply for the next 12 to 18 months of squalene production.

The company also raised $6.1m this year, of which $4m will be used to fund the development of a new Nelson plant able to produce more than 5000 tonnes of refined fish oil and generate annual sales worth up to $50m.

Edison said the new contracts, combined with greater certainty on the new plant, increased its estimates for SeaDragon noticeably.

The contracts could be a "game changer". But it also noted: "SeaDragon has a history of under-delivery on projections, due in no small part to the unpredictable nature of raw-material supplies.

"The new . . . supply contracts should eliminate most of this risk, although the fish still have to be caught and deliveries made to the company."

Chief executive Ross Keeley said recently the two contracts would combine for sales of more than $7m for the year after October. Details of the second contract were confidential.

Shares in the company yesterday rose slightly to 1.8 cents a share.

For the year ending March 31, SeaDragon announced a profit of $431,000 on sales of about $3m. Fairfax NZ

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