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Shucking news: oyster IPO surfacing

Tim Boreham
5 November 2020

If an upcoming IPO has its way, dinner party guests will need to contend with oyster aficionados raving on about creaminess and mouth feel along with the wine swillers, olive oil purists and crema-obsessed coffee snobs.

By making a splash into the underappreciated Sydney rock oyster pond, East 33 (E33) wants to be seen not so much as yet another ASX aquaculture entrant, but a prestige provenance play in the same style as the great French champagne houses.

That’s shucking news indeed.

Named in deference to the harbour city’s latitude, East 33 is all about consolidating rare and ancient growing leases into a scale entity with the financial firepower to market the world’s rarest oyster globally.

East 33 is in the throes of raising $32 million of equity and a further $10 million of debt to fund its plan to boost its market share from 9% to 25%.

As their name implies, the royal-purple tinted shellfish are only grown in NSW estuaries and 85% of the catch is sold within the waratah state.

The Sydney oysters have a long history as a nutritious staple for indigenous people, dating back thousands of years. As a native species, the Sydney oysters are less prevalent to disease than the introduced Pacific oyster, which is far more widely consumed.

The growing leases rarely change hands and have been held by the same families since as early as 1884.

“These are irreplaceable assets, there are no more of them coming,” says East 33 co-founder and executive chairman, James Garton.

Last year the company bought out four of the leaseholders and has agreed to buy out another six. However these families continue to be involved, with second-generation farmer Stephen Verdich to become head of farming operations.

While 120 billion oysters are produced worldwide  every year, only 640 million end up as live exports, with Australian oysters (mainly Pacific oysters) accounting for a mere 1%.

Insomuch as exclusivity equates to rarity, East 33 is in promising waters given only about 75 million Sydney oysters are produced each year.

The oysters can only be grown at 41 locations and only nine have export approvals. Of these, five of these are at Wallis Lake and East 33 now controls four of them.

To date, appreciating rock oyster pricing hasn’t provided the usual signal for the fragmented grower base to increase output because they don’t share enough of the spoils.

In a posh restaurant in China, one Australian oyster can cost $10 or more.

Legendary Sydney seafood eatery Doyles charges $13.50 for a plate of three from Lemon Tree Passage, while swish Rockpool charges $6 each for a Wallis Lake-sourced bivalve (albeit with mignonette sauce).

But ‘farm gate’ returns vary between 55 cents and 93 cents per oyster, depending on the size, which means most of the value is being captured by the restaurateurs and other middlemen.

East 33 strives to inject corporate expertise into what’s essentially a cottage industry lacking reach across the valuable bits of the supply chain.

It’s no coincidence the East 33 board includes two former executives from the luxury goods group LVMH (Moet Hennessy Louis Vuitton).

“But once you unleash the overseas demand for a luxury seafood product you had better be ready to meet the market,” Garton says.

East 33 managed underlying earnings (ebitda) of $5.2 million on revenue of $26.8 million the 2019-20 year. The company takes a stab at revenue of $40.2 million and earnings of $8 million by 2021-22, with output soaring from 4 million oysters to 15 million.

East 33’s raising is due to close on November 16, in view of a December 3 listing.

Tim Boreham edits The New Criterion ([email protected])

Disclaimer: Under no circumstances have there been any inducements or like made by the company mentioned to either IIR or the author. The views here are independent and have no nexus to IIR’s core research offering. The views here are not recommendations and should not be considered as general advice in terms of stock recommendations in the ordinary sense.

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