With the global population increasing rapidly and expected to reach the 9.8 billion mark by 2050, the macro backdrop for seafood companies has become increasingly robust. The expected increase in protein consumption is expected to contribute to high demand for marine protein which is known to be the most efficient source of animal protein. Existing seafood players are constantly on the lookout for new and sustainable technologies that are rapidly scalable in terms of seafood production in order to meet the rising demand. Our smallcap pick for the day is an ESG-focused seafood player with a unique and highly scalable approach to the production of fish and crab meat, which could become a behemoth in the years to come – Blue Star Foods Corp. (NASDAQ:BSFC).
Company Overview
Blue Star Foods is a fully integrated seafood company with a strong ESG (Environmental, Social, and Governance) focus. It is an integrated player that processes, packages, and sells high-value seafood across the globe to foodservice distributors, retail establishments, wholesalers, and seafood distributors in the United States, Canada, and Europe. The company imports, packages, and sells frozen pasteurized crab meat and other high-quality seafood products obtained primarily from Southeast Asia. The company also owns and operates North America’s oldest operating Recirculating Aquaculture System (RAS) full grow-out salmon farm. The company is headquartered in Miami, Florida.
Recirculatory Aquaculture Systems (RAS) Upside & The Taste of BC Aquafarms Acquisition
Blue Star Foods Corporation believes that Recirculating Aquaculture Systems (RAS) is the future of its industry and a win-win situation for all stakeholders involved in a long-term sustainable seafood supply chain. In simple words, RAS is a land-based farming system that works by filtering water from the fish production areas so it can be reused again and again, thus reducing the overall amount of water and space required to intensively produce seafood products. In June 2020, the company recently acquired Taste of BC Aquafarms, Inc., a family-owned and operated RAS land-based salmon farming company. The current Nanaimo facility produced 103% of the company’s goal of 100 tons of fish in 2020 and close to 98% of the output was well beyond market requirements in terms of texture, size, taste, and other quality indicators like ‘sushi grade’. With market demand continuing to outperform supply, the company intends to capitalize by increasing capacity and setting up more salmon farms using the current blueprint.
Taste of BC have been owned and operated by the Atkinson family who have been innovators in the RAS farming space for over a decade. They have built a proven and scalable model which can help Blue Star Foods to the next stage of growth and market share. The company has plans to 21,000 metric tons of steel-head salmon product by 2028 after scaling their existing technology. The implementation of a large-scale rollout for the salmon RAS model is expected to be a key growth driver for the company in the coming years.
Brand Recognition & Sales Growth
Blue Star Foods is historically known for its premium proprietary brands within the crab meat industry. The company sources its primary product, the blue swimming crab, from Southeast Asia. The product is processed on-site at local facilities, packaged, and sent to their market destinations in Europe and US. Blue Star Foods pays local fishermen who utilize their GPS-based proprietary technology system to trace product sources. The company also helps in capturing male crabs by mapping waters where more mature crabs can be harvested. Moreover, they catch crabs using collapsible traps instead of gill nets to prevent by-catch i.e., unwanted fish or other marine creatures.
Blue Star Foods holds several global patents on eco-fresh crab meat pouches. It is worth highlighting that they are the only company that sells crab meat in pouch form as it is cost-efficient and has a longer shelf life than traditional metal cans. These pouches also reduce CO2 emissions by 60% compared to cans. Its ESG focus was highlighted in the company’s first GRI Standard Sustainability Report published in January 2021 where all the globally recognized, quantifiable, and standardized ESG Key Performance Indicators demonstrated how Blue Star Foods deeply cares for the ocean waters where crabs are harvested.
Strategic Acquisitions
Blue Star has acquired 3 different companies, Coastal Pride (a seafood company that focuses on importing fresh and pasteurized crab meat primarily from Mexico and Latin America) and previously mentioned, Taste of BC (RAS Steelhead Salmon land-based farming). On December 14th, they announced the acquisition of assets Gault Seafood, LLC. Gault is a Recirculatory Aquaculture Systems (RAS) company with unique technology focused on harvesting the Atlantic Blue Crab during its off-season.
The Gault Seafood team has developed a special RAS technology that will allow Blue Star to modify the molting cycle of the Atlantic Blue Crab and therefore be able to harvest them in the off-season. The existing crab season starts in March in Louisiana, and moves slightly northward every couple of weeks until you hit September in New Jersey. Outside of this window, it’s almost impossible to get any of this product and bring it to the North American market. The Company believes this technology we allow them to satisfy the consumer’s desire to enjoy the Atlantic Blue Crab all year long.
Final Thoughts
Blue Star Foods has shown the typical volatility of a small-cap NASDAQ, but the fact remains that the company is heavily undervalued as compared to most of its seafood peers. The company is currently trading at a trailing enterprise-value-to-revenue multiple of 5.8x and a forward multiple as low as 1.8x which is below the likes of Aquabounty, Atlantic Sapphire, as well as its Nordic peers such as Mowi and Cermaq. With its rapidly expanding capacity for producing salmon as well as crab meat, Blue Star Foods should be able to scale its revenues at an unprecedented rate which should unlock a significant amount of value. Overall, we are highly bullish about Blue Star Foods, and we believe that it is an excellent investment pick for our readers.