Why I’m Investing in Fish

It’s a simple pleasure I’ve been enjoying since I was a small boy. Friday night fish and chips. I remember sitting in the Black Cat Café as it was called, waiting for our order to be cooked. The old pinball machine in the corner. The prices were on the blackboard. Was it $0.90 for a piece of fish? I can’t remember.

The place was run by European migrants. ‘A good cash business,’ my Dad would say. ‘A way to make your own job, when you can’t easily walk into one.’

He was moving jobs at the time, to a larger city. The inability to sell our house was hanging over us. In the end, they were offered a ridiculously low price for the quality home they had built on a nice section with a large vegetable garden. $67,000, if I recall.

But they accepted it. ‘Houses are only worth what someone is prepared to pay for them,’ Dad said.

You can learn a lot about prices and markets by looking at fish shop blackboards. And trying to sell a home in a weak market in a town where not that many people want to live.

Some three decades later, I was living with my family in the Channel Islands, working in the finance industry. Fish and chips were meant to be cheaper here than in London. During the short summer, I’d take the kids to Wally’s fish shop and grab a parcel to take down to one of Britain’s ‘top 3 beaches’.

Nice beach but pricey when adding parking and fish and chips. Source: Sugareef

On a Friday night, that little fish shop near the beach would be packed. You could wait half an hour or more for your order. Parking was tricky. Then you’d pay nearly £5 ($9.90) for a small piece of cod — nearly £8 ($15.80) for a large one.

The disappointment became so great, we ended the fish and chip tradition after a while.

Boy, did it feel good arriving back one Auckland summer. Fish of the day: $2.80. Fresh Terakihi: $4. Snapper: $5. Emptier beaches. Smiling people. A real summer of months rather than days.

Kiwis, you do not know how lucky you are.

The price of fish, like most things in an economy, is based on supply versus demand. As my Dad said — what people are prepared to pay for things.

In Britain, often it feels like there are too many people chasing too few fresh fish.

Fish and the property con

In New Zealand, we have one of the largest fishing zones in the world. 4.1 million square kilometres. And a low population base. This provides a competitive advantage. Good quality, fresh fish at reasonable prices locally. A thriving export sector supplying growing world demand.

You would think in a country with a low population density, the same equation would apply to housing. Plenty of land. Enough homes.

In fact, previous governments got it so badly wrong, the coming correction could lead to economic disaster. Worse, heavy financial exposure to property investment has made us as vulnerable as old glass in the eye of a quake.

Amped up demand for Kiwi housing

I don’t think you’d pay $15 for a piece of fish at your local chippie. In Britain, you may have little choice. Especially as the population-to-food supply ratio continues to worsen.

But you might have paid $2 million for a worn-out bungalow in Epsom. And if you want to be in the Grammar Zone with rooms for your kids, you would have had little choice.

A financial adviser friend told me about a typical client’s housing exposure. Although he is a well-paid doctor, the purchase price of his home had been around eight times his income. His mortgage is approaching $1 million.

More concerning is the generation of debt that property market abuse has led to.

Property market abuse?

Sensible rules around borrowing for property range. From no more than 30% of your income on a mortgage. To borrowings of no more than three times your income.

What happened up until last year was that Kiwi homes, especially in Auckland, were floated on a global market. Well, there were two global big money markets chasing them.

The first was simply that millionaires from anywhere could park their money in a safe Auckland home. The second was high per capita rates of migration bringing in new money.

It’s been hard to get a handle on the stats. Some commentators have argued foreign buying influence has been negligible across the country. Stats can lie. At an auction, it is the marginal purchaser able to bid a bit more that makes a difference.

A manager of one of the larger central real-estate franchises told me in the early 2000s he was seeing nearly half the homes in Epsom and Remuera being paid for in one form or another with foreign money.

I remember one auction in Mt Eden, where a young, probably local and first home buyer engaged in a spectacular bidding war with a family group using their real estate agent as a translator. The young buyer won. But it was Pyrrhic victory. He ended up paying a startling amount for a rundown house.

The problem with this scenario is that it inflates debt levels to cover these marginal bids.

The result? Australasian households have some of the highest household debt levels in the world. And even the Reserve Bank seems concerned, demanding increased capital requirements for banks, restricting riskier lending, and just recently cutting the OCR.

The worst part is that combined with low real wages, indebted families will struggle to find surplus to invest.

A neighbour has children of home-buying age. He was telling my wife the other day he has constantly schooled them with advice on allocating their incomes — 30% on mortgage, 30% to live and 30% for tax.

I guess that leaves 10% to invest. To grow passive income for the future.

But they’ve had to trim their housing expectations to follow the sage advice.

Fisheries were managed well, housing was not

Despite New Zealand’s vast fishing waters, the stock is managed. Fisheries New Zealand runs a sustainable fisheries programme, using a system of protected areas, licences and quotas.

We are commodity-based country, and the availability of key resources like fisheries is supported by a low population density.

Previous governments got greedy. Foreign money and the subsequent boost to GDP trumped sustainable migration and management of the country’s housing stock. And recent rampant migration statistics suggest they’re still greedy, with NZ population growth now running at 3.5x that of the US.

The awkward result is that although GDP has increased, with all the population growth in Auckland, GDP per capita growth here is lagging.

And now the government response is too late, and the correction is playing out.

Will last week’s cut to OCR keep the overweight Auckland housing market on sugar?

Not so sure. The market fundamentals now seem on a different track. And for investors, there are other ways to obtain yield.

In this environment, I’m looking at defensive investments. And going fishing.

Sanford [NZX:SAN] is a long-established fishing company.

I’ve previously had a fine run with salmon stocks. So much so, I cook the pink fish weekly.

Diversified fishing does appear to have lower margins, but they are still reasonable in this sector. And as with salmon, I’m seeing steadily increasing sales over a five-year period.

Sanford trades at a P/E of about 15 and yields a gross dividend of around 4.6%. Not exciting value — but still good fishing when you consider the current share price only commands a premium of around 10% above book value.

The unique asset with Sanford lies in its significant holdings of commercial fishing quota with a strategy to move up the value chain alongside growing global demand for seafood.

Unfortunately, I’m not alone on this opportunity. There may be competition. Of the ‘hot broker picks’ for 2019, Sanford was one of only four stocks that featured at least two picks.

Of course, this investment is not without risk. Fishing is a seasonal business. Earnings can fluctuate depending on the catch. Weather and warming sea temperatures can create challenges in certain areas. And broker picks for a year may be skewed toward short-term performance.

Meanwhile, this Friday, I will be heading down to my local for snapper and chips. Quite probably caught on a Sanford boat.

Regards,

Simon Angelo

Analyst, Money Morning New Zealand

Important disclosures

Simon Angelo owns shares in Sanford Ltd [NZX:SAN] via wealth manager Vistafolio.


Simon is the editor of Money Morning and has been investing in the markets since he was 17. He recently spent a couple of years working in the hedge fund industry in Europe. Before this he owned an award-winning professional services business and online learning company in Auckland for 20 years. He has completed the Certificate in Discretionary Investment Management from the Personal Finance Society (UK), has written a bestselling book and manages global share portfolios.


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