Feeding the world’s ever-growing population is big business, and with the number of humans on this planet set to hit 9bn by 2050, the food production industry has its work cut out.
One play on this trend is the AIM-traded producer of nutrition, breeding and health products for the global aquaculture industry Benchmark (LSE: BMK).
Building for the future
For the past two decades, Benchmark has been in investment mode, spending heavily to increase its global footprint and re-investing all of the cash generated from its fledgeling operations back into the business. It now looks as if all this hard work is starting to pay off.
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For the six months ended 31 March, adjusted earnings before interest, tax, depreciation and amortisation jumped 91% to £6.3m while adjusted profit before tax hit £4.4m. Revenue for the period grew 9% to £75.7m.
That being said, Benchmark is still ploughing funds back into growth. The firm recently completed a £17m commercial-scale fish vaccine manufacturing site in Braintree and its disease-free fish egg production facility in Norway expects to reach full capacity by 2019. Meanwhile, the group recently tapped shareholders for £12.2m to fund a 49% interest in a “strategically important Chilean JV” giving it a large presence in Chile, the world’s second-largest salmon market.
In my opinion, management is heading in the right direction by prioritising growth over profit at this stage. The global aquaculture market is expected to grow by 5% per annum to reach a market size of $219bn by the year 2022, and it would be silly for Benchmark not to make the most of the market expansion.
Unfortunately, as the company continues to invest, City analysts are expecting losses to continue for the next few years, but over time, Benchmark’s efforts should really pay off, and I wouldn’t be surprised if a larger competitor buys out the enterprise and its technology before it has a chance to break even.
Follow the money
Unlike Benchmark, Hikma Pharmaceuticals (LSE: HIK) is already profitable, but growth has hit the rocks in recent years thanks to rising competition and the firm’s own mistakes.
Still, now Hikma is in recovery mode, and it looks as if the business has the unreserved backing of its management. CEO Sigurdur Olafsson recently splashed out £262k to snap up 20,000 shares in the company and was shortly followed by Chief Scientific Officer Surendera Tyagi who spent £20k.
Analysts have soured on Hikma recently because the launch of what was supposed to be a blockbuster generic version of Advair, GlaxoSmithKline’s money-spinning respiratory medicine, has been held back by the US drugs regulator the FDA.
This was supposed to be one of the company pillars of growth in 2018 and 2019, but it now looks as if there will be no approval until at least 2020. In the meantime, the City believes Hikma’s growth will be sluggish with earnings growth of just 5% is pencilled in for this year.
Nonetheless, as with Benchmark, I believe that over the long term, Hikma’s growth will return as the world’s ever-expanding population demands access to more affordable healthcare. The stock might not look cheap today, trading at 20 times forward earnings, but the potential opportunity available to the business over the long term is clear.
