The global seafood industry is one of the most resilient markets that has good prospects given the increase in world population and protein consumption. Today, fish and crabmeat are among the most commercially effective sources of animal protein.
However, due to this same increase in consumption, this positive market situation will not last forever if companies do not focus their efforts on sustainability. If sustainability concerns are ignored, even the vast oceans will eventually run out of fish due to human overconsumption. Therefore, seafood companies are looking for new sustainable technologies in aquaculture to increase production and meet growing demand.
Blue Star Foods Corp. (NASDAQ: BSFC) is a relatively small player in this space that has truly increased its value and built a scalable salmon farming model after a series of relevant acquisitions in 2021. Let’s take a closer look at this company to see why I think that this could represent an excellent value opportunity for microcaps.
What does Blue Star Foods do?
Blue Star Foods is an integrated seafood company with a strong focus on ESG (environmental, social and governance) standards. It is known for processing, packaging, distributing and selling high-value seafood products to foodservice distributors, retailers, wholesalers and seafood distributors in the United States, Canada and Europe.
The company also sells frozen pasteurized crabmeat, salmon and other premium seafood products, many of which are imported from Southeast Asia. The company has a strong portfolio of seafood brands with names including Blue Star, Pacifika, Oceanica, Crab & Go Premium Seafood, Lubkin, Good Stuff, First Choice, Coastal Pride Fresh and Little Cedar Falls.
Blue Star Foods owns and operates the longest growing recirculating aquaculture system (RAS) salmon farm in North America. The company uses state-of-the-art technologies for sustainable resource management and traceability, as well as environmentally friendly packaging. Blue Star Foods is headquartered in Miami, Florida.
Offering of crabmeat
Blue Star Foods is well known for its exclusive premium brands in the crabmeat industry. It sources its main product, the blue swimming crab, from Southeast Asia. The crabs are processed on site in local facilities, packaged and shipped to markets in Europe and the United States. In 2020, the company sourced approximately 90% of its products from Indonesia (44%) and the Philippines (46%). Blue Star Foods compensates local fishermen who use their unique GPS-based technology system to trace product sources. Additionally, the company assists in the capture of male crabs by mapping waters where more adult crabs could be harvested. They also herd crabs with collapsible traps rather than gillnets to avoid bycatch, unwanted fish or other marine organisms. Blue Star Foods holds several worldwide patents for eco-fresh crabmeat pouches. It is worth mentioning that they are the only company to offer crabmeat in pouches, which are cheaper and have a longer shelf life than standard canisters. This offer was enriched by the acquisition of Coastal Pride in 2021.
Acquisition of Coastal Pride
In 2021, Blue Star Foods announced the acquisition of Coastal Pride Company, Inc., another seafood company that specializes in importing fresh, pasteurized crabmeat from Mexico and Latin America. This expands the company’s existing capabilities as it can now distribute premium branded crabmeat to a diverse customer base across North America through Coastal Pride’s operating subsidiary, John Keeler. & Co., Inc.
Blue Star Foods seeks to develop a vertically integrated, geographically diverse and multi-species sustainable seafood business for the long term. The addition of Coastal Pride brands, including Lubkin’s Coastal Pride, Lubkin’s Good Stuff and Lubkin’s First Choice, is an excellent addition to Blue Star Foods’ portfolio. Blue Star Foods has a long history of selling consistent, top quality Portunus species from Southeast Asia, while Coastal Pride has a long history of supplying Callinectes species from Mexico and South America . Therefore, the combined entity is expected to be a one-stop-shop for customers looking for a variety of pasteurized and fresh crabmeat under one roof.
Taste of BC Aquafarms and the RAS system
Blue Star Foods believes that Recirculating Aquaculture Systems (RAS) are the future of the industry and a win-win situation for all involved stakeholders in a long-term sustainable seafood supply chain. . In a nutshell, RAS is a system that filters water from fish production areas so that it can be reused, reducing the overall amount of water and space needed to intensively produce seafood.
To that end, Blue Star Foods recently acquired Taste of BC Aquafarms, Inc., a family-owned RAS-based company based in Nanaimo, British Columbia, Canada. It was acquired with a combination of cash, equity and debt. The current Nanaimo plant generated 103% of the company’s goal of 100 tonnes of fish in 2020, and more than 98% of production exceeded market expectations in terms of texture, size, taste and other quality indicators such as “sushi quality”.
As market demand continues to increase significantly, Blue Star Foods plans to capitalize by increasing capacity and establishing more salmon farms under the current master plan. Interestingly, Taste of BC is owned and operated by the Atkinson family, who invented RAS farming over a decade ago. They have developed a tested and scalable methodology that can help Blue Star Foods reach the next level of development and offer its delicious sashimi-grade steelhead fish through its sales platform.
After scaling up its existing technology, the company plans to produce 21,000 metric tons of seafood per year by 2028. The company says it should be able to produce more rainbow fish RAS than many of its publicly traded contemporaries following the acquisition of Taste of BC. The implementation of the RAS salmon model at scale is expected to be a key growth driver for the company in the coming years.
Blue Star Foods’ stock price fell after its reissue of more than 3 million shares in 2021 and its move to Nasdaq. Currently, the company is trading at a price-to-sell ratio of 3.11 and a forward price-to-earnings ratio of 18.61, both of which are very reasonable. Given the company’s potential for scaling production using its RAS systems, I believe the company’s revenue should grow at a rapid pace, as should the stock price. . Overall, I am very optimistic about the future of Blue Star Foods and believe it could be an attractive investment opportunity in the seafood industry.
This article first appeared on GuruFocus.