COZ 1.33% 7.6¢ commodities group limited

A Perspective of COZ

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    Some years ago I bought a small parcel of shares in COZ, and over time I’ve both added and subtracted from that initial parcel. I liked its carbon story, but that business, being somewhat artificial and subject to the whims and uncertainties of politicians that come and go, had considerable risk.
    Although COZ remains a speculative investment, particularly being a small company, its move into the prawn aquaculture business has given the company a new and exciting lease on life, particularly in view of the increasing global demand and interest in shrimp aquaculture in a relatively safe biosecure environment such as Australia. Whilst in its infancy for COZ, the prawn aquaculture business has the potential to become a huge business, with both domestic and export annual markets being many billions of dollars.
    Initially Project SeaDragon was the sole thrust for COZ, but that was also just a very conceptual play with no promise of income for a considerable time, albeit supported by an attractive Scoping Study outcome. Since that introduction however COZ has considerably improved credibility with the additional dimension of prawn production through its Sea Farms acquisition plus the more recent Coral Seafarms addition. In aggregate those prawn farms currently produce around 30% of Australia’s prawn output, and increasing!
    COZ has the potential to become a major aquaculture company with a market cap several multiples of its current level of $52 million. Directors have a significant proportion of all stock (in excess of 58% of all shares in the Ann Rept for 2014) and are clearly committed and motivated for COZ success. Prior to the rights issue of mid-2014 the Chairman used the creep provisions under the Corps Law to add to his huge personal holding, and then took up his full entitlement in the rights issue (at a personal cost of around $5 million!).
    From a historic perspective the top 20 shareholders have tended to hold, and for some, to add to their holdings over the years (Ann Reports: 2012-72.91%, 2013-72.52%, 2014-71.75%).
    As a result of the distribution of shares into larger less traded blocks of shares and the transition from carbon trading into aquaculture activities, trading in COZ shares in the past couple of years is like watching paint dry – it’s been an illiquid stock. Thus trading is usually fairly lumpy, and most chartists would find its trading pattern far from ideal to interpret TA trends
    Whilst I can’t be certain, my feeling is that from the time of COZ presentation prepared mid 2014 for the Moellis investors there has been a gradual turning of stock from small holders to larger holders (also supported by the fact of largish buy orders taking out stock on Offer at various prices), so that demand for stock has become more competitive. Essentially I view it as an opportunistic accumulation phase prior to the general market recognising the potential that COZ holds with its business.
    This accumulation phase has occurred mainly unnoticed by the market although there was a premature surge a few months ago to an intra-day high of 8.5 cents settling back to 8.0 cents on the close and gradually pulling right back to 6.2 cents over following days. Since that surge the volumes have slowed but the price has gradually built with the odd opportunistic purchase each couple of days continuing the accumulation. The fact that there have been the odd strategic small “bot” type trades, commonly at the end of the day, gives me more confidence that this accumulation is by larger investors. This slow and quiet accumulation phase however must be close to an end with the likelihood that the revenue stream is now finally building up as prawn production similarly builds, and the urgency to get cheaper shares has increased.
    In the past couple of weeks COZ trading characteristics have changed slightly, with the price building up to around 6.5 cents, with a short test at 7.0 cents and then pulling back to 6.8 cents. Then a bid of 2.0 million shares popped on the screen at 6.5 cents (such a Bid never observed in recent times), and this was met by a sell of 2.0 million at that price of 6.5 cents on the same day. A couple of days later another 2.0 million was Bid at 6.0 cents and another 0.5 million was bid at 6.5 cents, but both were below a Bid at 6.7 cents and were never taken out. The main line on Offer was 550,000 shares at 7.2 cents, with some much smaller Offers around 6.9 cents and 7.0 cents. Those lines of stock remained for a few days, then last mid-week a number of buyers took out around 1.0 million shares at 7.0 and 7.1 cents. This was finally followed by Thursday and Friday’s trades that took out that disclosed Offer of 550,000 at 7.2 cents. After this there were minimal shares on Offer and eventually at the close of trading on Friday 6th Feb the last trade had reached 7.6 cents. Finally it seems that the demand is now getting impatient, seeking out shares at higher and higher prices. My feeling is that the market has now been alerted to the share price beginning to pop, and with a dearth of supply the share price is likely to build from here. Looking at the yearly chart there is a hurdle on the horizon, with resistance at 8.0 – 8.5 cents. If this level is taken out, and surely there will be more shares available at this level, then the share price could start to run up well beyond the 8.0 – 8.5 cents level.
    Interestingly, the market cap of COZ at a price of 8.0 cents still remains at a relatively low $55 million (cf CSS currently valued at $85 million, equivalent to a COZ share price of 12.5 cents). Since the production revenues for COZ and CSS are comparable (but with COZ having more potential due to Project SeaDragon) COZ could easily attain and justify a share price closer to 12.5 cents. [Once the go ahead for Project SeaDragon is signalled then a market cap far beyond $85 million is on the cards IMO (thus multiples of 12.5 cents achievable)].
    Now the strange thing about the recent trading in COZ is that it has occurred at a time when news has been lacking, and actually an Update of prawn production was expected in the past couple of weeks covering the period running up to Christmas trading. My feeling is that the Update may have been delayed to allow it to coincide with the upcoming AGM, to be held on 26 Feb. Again this is my interpretation.
    The next couple of weeks leading up to the AGM on 26th Feb should be interesting for COZ due not only to the last few days of trading and a possible drying up of shares on Offer, but also with the possibility of an Update to Operations.
    Importantly COZ has its own priorities and its own timetable regardless of how the broader market trends in the coming weeks, and it is likely to out-perform the general market. Furthermore, once the wider market becomes aware and realises what COZ’ activities and potential are, and as it gets closer to meeting that potential, its share price is likely to move far higher. The Moellis presentation contains cash flow projections that if achieved in coming quarters could point to a share price far in excess of 12.5 cents based on PE’s! Always IMO of course!
    My view of the current Lib Party stoush, the possibility of Malcolm Turnbull getting back as Leader, and thus a rerating of COZ off the back of its CO2 business – about 100 to 1! COZ’ story is not going back to the past, its about the future, a new business model all about aquaculture. The carbon business will only ever provide a modest annual profit to cover head office costs unless COZ can monetize the asset by offloading it earlier with a one off sale at some discounted NPV price. Most importantly I don’t believe that the current share trading in COZ has got anything to do with the Lib Party antics whatsoever.
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