WITH only a couple of sleeps to go until the end of a year most investors would like to forget, the insidious and creeping effects of the eurozone crisis continue to be felt in unanticipated ways.
This morning's victim is pearl producer Atlas South Sea Pearls, which farms the treasured transmogrified oysters in a number of Indonesian locations.
In a similar yarn to the retailers, Atlas was travelling OK until the third quarter. "Up to October of this year, Atlas achieved a steady increase in pearl prices with strengthening demand," the company reports.
"However, in the fourth quarter, the flow-on effects of the deepening eurozone crisis began to materially affect the demand for wholesale pearls.
"This, combined with some pearl producers releasing high volumes of pearl inventory, has placed considerable negative pressure on the pearl market, forcing Atlas to discount in order to maintain turnover."
While it's understandable that demand for such luxuries would stall in uncertain times, the pearling game had already fallen on hard times, with prices collapsing after the GFC.
In 2007, Atlas was receiving an average $75 a pearl, compared with about $40 now.
The quirk of pearl demand is that it's driven predominantly by the Japanese, who have been shaken (often literally) by their own issues this year.
The pearl downturn has already claimed a noteworthy casualty: Arafura Pearls, Atlas's listed peer entered insolvency in April this year owing creditors $6m.
Arafura, which farmed wild oysters locally, had the biggest quota behind the private Paspaley dynasty, but that didn't help them when the market turned.
Atlas now says its projection of "normalised EBITDA" of between $1.5m and $2m for the year is unlikely to be achieved, while actual revenue will fall shy of the budgeted $13.8 by $1.7m.
Despite the vicissitudes, Atlas plans to increase its output by 80-100 per cent over the next five years, which will require further funds of $6.5m and thus another capital raising.
Criterion last covered Atlas in October 2007, when we rated the stock a hold at 41c. "Arguably the stock doesn't have the same upside as Arafura," we unwisely opined at the time.
Our rating is under REVIEW, but this swine is inclined to pass over this pearl for the time being.
Original Article: http://www.theaustralian.com.au/busi...-1226231803028