The global seafood industry is one of the most resilient markets that has a strong outlook given the rising global population and protein consumption. Today, fish and crab meat are among as the most efficient sources of animal protein from a business perspective.
However, due to that same rising consumption, this positive market situation won't last forever if companies don't 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 and sustainable technologies in aquaculture to increase their production and meet the rising demand.
Blue Star Foods Corp. (BSFC, Financial) is a relatively small player within this space which has truly expanded its value and built a scalable salmon farming model after a series of pertinent acquisitions in 2021. Let's take a closer look at this company to see why I believe it could represent a great microcap value opportunity.
What does Blue Star Foods do?
Blue Star Foods is an integrated seafood company that has a heavy emphasis on ESG (Environmental, Social and Governance) standards. It is known to carry out the processing, packaging, distribution and sale of high-value seafood to foodservice distributors, retailers, wholesalers and seafood distributors in the United States, Canada and Europe.
The company deals in frozen pasteurized crab meat, salmon and other premium seafood items as well, many of which are imported from Southeast Asia. The company has a robust seafood brand portfolio with names like 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 runs North America's longest continuously operating Recirculating Aquaculture System (RAS) full grow-out salmon farm. The company employs cutting-edge technologies in resource sustainability management and traceability, as well as environmentally friendly packaging. Blue Star Foods has its headquarters in Miami, Florida.
Crab meat offering
Blue Star Foods is well-known for its premium proprietary brands in the crab meat sector. It sources its primary product, the blue swimming crab, from Southeast Asia. The crabs are processed on-site at local facilities, packaged and shipped to markets in Europe and the United States. In 2020, the company sourced about 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. In addition, the company aids in the capture of male crabs by mapping waters where more adult crabs might be harvested. They also gather crabs with collapsible traps rather than gill nets to avoid bycatch, undesired fish, or other marine organisms. Blue Star Foods owns several global patents for eco-fresh crab meat pouches. It is worth mentioning that they are the only company that offers crab meat in pouches, which are less expensive and have a longer shelf life than standard metal cans. This offering was enhanced 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 and pasteurized crab meat from Mexico and Latin America. This expands the company's existing capabilities, as it can now distribute premium branded label crab meat to a diverse customer base across North America through Coastal Pride's operational subsidiary John Keeler & Co., Inc.
Blue Star Foods is looking to develop a vertically integrated, geographically diversified, multi-species, sustainable seafood enterprise over the long run. The addition of Coastal Pride brands, including Lubkin's Coastal Pride, Lubkin's Good Stuff and Lubkin's First Choice, is an excellent value addition to Blue Star Foods’ portfolio. Blue Star Foods has a long history of selling consistent and premium Portunus species from Southeast Asia, while Coastal Pride has a long history of supplying Callinectes species from Mexico and South America. Hence, the combined entity is projected to be a one-stop-shop for customers looking for a variety of pasteurized and fresh crab meat under one roof.
Taste of BC Aquafarms and the RAS system
Blue Star Foods believes that Recirculating Aquaculture Systems (RAS) is the industry's future and a win-win situation for all relevant 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 again, hence reducing the overall amount of water and space necessary to intensively produce seafood products.
To this end, Blue Star Foods recently acquired Taste of BC Aquafarms, Inc., a family-owned and operated RAS system-based salmon cultivation process 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 tons of fish in 2020, and over 98% of the production exceeded market expectations in terms of texture, size, taste and other quality indicators such as "sushi-grade."
With market demand continuing to increase substantially, Blue Star Foods plans to capitalize by growing capacity and establishing more salmon farms in accordance with the present blueprint. Interestingly, Taste of BC has been owned and operated by the Atkinson family, which has been inventing in RAS farming for more than a decade. They have developed a tested and scalable methodology that can assist Blue Star Foods to reach the next level of development and offer their delectable, sashimi-grade steelhead fish via their sales platform.
After scaling their existing technology, the company plans to manufacture 21,000 metric tons of seafood products annually by 2028. The company says it should be able to produce more RAS steelhead fish than many of its publicly traded contemporaries following the Taste of BC acquisition. Implementing the salmon RAS model on a broad scale is expected to be a key growth driver for the company in the coming years.
Final thoughts
Blue Star Foods’ stock price has dropped after its fresh issue of more than 3 million shares in 2021 and its uplisting to the Nasdaq. Currently, the company is trading at a price-sales ratio of 3.11 and a forward price-earnings ratio of 18.61, which are both very reasonable. Given the scaling potential of the company’s production using its RAS systems, I believe that the company’s revenues should grow at a rapid rate, and so should the stock price. Overall, I am highly optimistic about Blue Star Foods’ future and I believe it could be an attractive value investment opportunity within the seafood space.
