What underlying value ​do Aqua Spark and IntraFish see in Hofseth BioCare?

Editorial
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PR or journalism?

On Thursday afternoon, it was announced that Aqua Spark will cough up €9.8 million to secure 12.1 million shares in Hofseth BioCare. The transaction was made at a price of NOK 8.10 – a premium of 17.3 per cent over the last share price.

“Big move for Aqua-Spark as they move into public markets for the first time with  Hofseth BioCare ASA. An interesting company to track, and Amy Novogratz, Mike Velings and team see a lot more value,” wrote IntraFish editor Drew Cherry on LinkedIn after the Dutch asset manager bought 3.4 per cent of Hofseth BioCare.

In the headline, IntraFish refers to Hofseth BioCare as “undervalued” in its coverage (paywalled) of the purchase.

Underrated or overrated
But how “undervalued” is Hofseth really?

Aslak Berge

Let’s take a look at the accounts.

Hofseth BioCare has never made money. During the company’s lifetime of 12 years, it has lost NOK 853.8 million (€86 million) before tax. During the same period, deficit has been higher than turnover for nine years.

The thundering losses continue this year. This morning, the company presented the figures for the third quarter – which showed an accumulated deficit of NOK 89.3 million (EUR 8.9) after a turnover of a modest NOK 61.5 million (€6.2 million).

Hot air
The company’s book equity was NOK 176 million (€17.6 million) at the end of the third quarter of the year. Nevertheless, the market value is NOK 2,505 million (€253 million), which gives a price/book of a generous 14.2.

So there is a lot of hot air here.

Hofseth, which has raised new equity in several rounds on the Oslo Stock Exchange, has a debt of NOK 138 million (€14 million).

The business model is to buy cuts of salmon and trout from the main shareholder’s salmon processing plant in Ålesund. This naturally sets clear guidelines for the pricing of the raw material. The salmon cuts are then refined into pharmaceutical products and sold on the international market.

It costs a lot to build a biotechnology company. Operating costs have, over time, far exceeded revenues. This is the main conclusion anyone with nine years of primary school can drop after studying the accounts.

Refills
Having said that, of course, something revolutionary may happen next week, next year or in five years. Neither we nor the shareholders in the company can know that. What is certain, however, is that the company cannot continue to lose so much money without asking shareholders to replenish capital. There, Aqua Spark can can help.

According to its annual report, Aqua Spark has invested €110 million in aquaculture, and has also previously marked itself as buying expensive. Among the company’s positions are the loss makers Bluegrove and Sogn Aqua. The latter has not made money in seven years.

It is now admittedly a long way from the IntraFish editorial office’s premises in Seattle to Hofseth’s offices on Syvde, but it is difficult to argue that Aqua Spark have got themselves an inexpensive deal.