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Thursday, October 05, 2006

AAQ - Australis Aquiculture Ltd

Crazy Jim Smith ( www.crazyjimsmith.com ) has requested I take a look at ASX:AAQ.

For those that don't know Australis Aquaculture Limited (AAQ) is involved in the production and marketing of barramundi. Fingerlings are sourced from Australia and transported to a US production facility for sale in the US market. Australis has acquired an aquaculture facility at turners Fall, Massachusetts USA and since September 2004 has exported commercial quantities of Barramundi fingerlings to its US aquaculture grow out facility.

The numbers are : Total revenue increased 238% to $5.6 million while net loss decreased 82% from a loss of ($1,776,198) for FY 2005 to a loss of just ($322,892) for FY 2006. Third-Party sales grew by 672% from $412,511 in FY 2005 to $3,186,361 for FY 2006.

While they have reduced the loss they are still making a loss and promises aren't always kept but it does look promising at this stage.

Something to note is the new hatchery in North America will help costs as stated in the preliminary report.

"Over time, the Company’s US hatchery will reduce operating costs while helping to assure a reliable fingerling supply. The new hatchery will be expanded from its current pilot phase to an
estimated 7 million fingerlings per year in order to support the company’s medium term production target of 5,000 tpa."

This should help drive down costs and bring the company into profit.

Looking at the cashflow sheet we can see they are still spending more then they are bringing in which is never a good side. Cash reserves more than halved during the year and this will either need to be recouped by increasing sales this year or spending will need to be cut.

Overall this is not a stock I would recommend. If you are looking for a buy price you probably want to get in around 5-8 times earnings. If we assume the company will make a profit nexct year earnings should increase to approx 1.5c - 2c in optimum conditions. More likely they will earn 0.5c-1c next year. This puts the valuation on this company around 5-8c. If they hit 2c earnings next year the company would be valued around 16-20c. This is still a long drop from where it currently is sitting at 46c.

but Remember this is a speculator stock and it could increase dramtically in the near future if everything goes well for them but there are a lot of risks associated with it. If you really want this share I would say wait another 6 months and see if it has fallen back down. It spiked in early 05 just to come back to its previous level. This time I suspect it will do the same and be back around 36c .. still too high for me though.

Good Luck

2 comments:

crazyjimsmith said...

Hi Paul,

They had a solid jump today so it may be worthwhile to jump onto it.

High volume and a 15% jump in price may indicate some positive news in the short term.

Regards.

Anonymous said...

I use to work for the company. Although i did not like some of the people that worked there I truly believe in the company and their product. Their indoor facility is amazing. I have high hopes for this company. Too bad I lost all my stock options when i left the company.