Aquaculture Sector Report

Transcription

Aquaculture Sector Report
Positive sector view
3Q15 Previews 6 October 2015
Share data (NOK m)
05.okt.15
Sector
Aquaculture
Risk rating
Medium
Market cap (NOK m)
100 143
NIBD (NOK m)
15 357
EV (NOK m)
115 500
Volumes (t)
922
EV non-farming NOK m
19 143
EV upstream
96 357
EV/kg
104
Free float %
>50
Weight OSEBX %
Company
Dividend payments
Marine Harvest
Lerøy Seafood Group
SalMar
Bakkafrost
Norway Royal Salmon
Grieg Seafood
Akva Group
Company
EPS adj.
Marine Harvest
SalMar
Bakkafrost
Norway Royal Salmon
Grieg Seafood
Akva (ex. Aquatec)
Comp.
Rating
Old
MHG
LSG
SALM
GSF
BAKKA
NRS
AKVA
BUY
BUY
NEUTRAL
BUY
NEUTRAL
NEUTRAL
BUY
B
B
B
B
N
B
B
10
Comp.
MHG
LSG
SALM
BAKKA
NRS
GSF
AKVA
Comp.
MHG
LSG
SALM
BAKKA
NRS
GSF
AKVA
Target
124
350
137
37
260
69
39
2015
DPS
5.1
12
10
6.5
2.5
0.5
1.5
2015
EPS adj
6.97
25.30
10.15
19.30
3.75
1.80
2.32
Old
118
338
140
36
256
73
34
Yield
5%
4%
7%
2%
4%
2%
4%
Upside
15 %
13 %
0%
19 %
-4 %
4%
39 %
2016
DPS
Yield
7.5
7%
14.0
4%
10.0
7%
8.7
3%
2.0
3%
0.5
2%
1.5
4%
2016
EPS adj
9.95
31.20
12.39
20.60
5.08
4.36
2.63
impl P/E target lev.
12
11
11
8.5
12
n.m.
n.m.
Less supply than demand next years – El Niño in
Peru likely to cancel second season
The feed companies guide on more or less stable global fish feed sales this
year. Hence, we continue to estimate flat global supply next year, down from
9% growth in 2014 and 1-2% in 2015E. Norway is close to capacity utilisation,
and the green licenses will lead to only moderate growth next years. In Chile,
we continue to calculate negative supply for the next 3-5 year period due to
serious biological challenges, smolt culling following the Puerto Montt volcano
eruption and stretched balance sheets. Many Chilean farmers are unable to
finance increased smolt stocking. Smolt stocking in Chile will be reduced.
Demand in core markets is growing steadily. European markets remain firm,
with new consumer packed products stimulating demand further. Producers
will likely seek further long-term contracts with retailers ahead. At 2Q MHG
announced new long-term contracts with leading retailers in the UK and US.
We continue to capitalize on a long-term equilibrium HOG price close to EUR
5/kg. Integrated companies with downstream exposure will get better paid and
be able to grow the top line more than pure upstream players. Hence, our top
picks are MHG and LSG. Last months, the NOK has weakened, which is
positive for Norwegian farmers. Around 45% of cost is NOK-based. Stronger
EUR and GBP vs NOK increase consumer purchasing power in Europe.
According to the World Meteorological Organization (WMO) a strong El Niño is
now present in the tropical Pacific Ocean. The majority of models suggest that
the El Niño is likely to strengthen further before year-end. We assume that the
2H15 Peru fishing season will be effectively cancelled, affecting Chile smolt
stocking negatively. Further, the 1H16 season may be at risk, in which case
fish meal prices could easily be doubled. Salmon supply would then be further
reduced, and salmon prices would move even higher than our base case.
Aqua Peer Group (2016)
Prepared by analysts:
Bent Rølland
Fondsfinans AS
TEL: +47 23 11 30 27
[email protected]
Philip M. Scrase
Fondsfinans AS
TEL: +47 23 11 30 23
[email protected]
LSG
SALM
Current share price (NOK)
108
310
Share price target (NOK)
124
350
Upside/downside to target
15 %
13 %
Outstanding shares (mill)
450
54
MCap (NOK m)
48 519 16 818
2016E NIBD (NOKm)
8 603
1 916
EV (NOKm)
57 122 18 734
EV non-farming
9 906
5 435
2016 sales volume (HOG '000 t)
438
166
Theoretical farming capacity
581
179
Free capacity, %
25 %
7%
Impl. EV farming (NOK m)
47 216 13 299
Impl. curr EV/kg farming (NOK)
108
80
EV/kg cap. (NOK)
81
75
Trading discount to MHG (EV/kg)
-26 %
Non-farming, % of EV
17 %
29 %
Trading discount to MHG (EV/kg cap.)
-8 %
Impl EV/kg at target (NOK)
124
93
Impl EV/kg cap. at target (NOK)
94
87
NIBD per kilo fish (NOK). 2016
20
12
NIBD per share (NOK)
19
35
EBITDA (2016)
7 053
2 764
EBIT (2016)
5 833
2 364
Farming EBIT (2016)
5 418
1 810
Farming EBIT/kg (impl)
12.4
10.9
EPS adj (2016)
9.95
31.2
EV/EBITDA
8.1
6.8
EV/EBIT
9.8
7.9
P/E (adj.)
10.8
9.9
P/B
2.4
1.8
2016E DPS payments
7.5
14.0
Dividend yield
7%
5%
Fondsfinans Research estimates and calculations.
MHG
138
137
0%
113
15 579
2 896
18 475
3 119
138
156
11 %
15 356
111
98
3%
17 %
21 %
111
98
21
26
2 220
1 911
1 812
13.1
12.39
8.3
9.7
11.1
2.8
10.0
7%
GSF BAKKA
31
37
19 %
112
3 462
1 206
4 668
19
72
96
25 %
4 649
64
48
-40 %
0%
-40 %
74
55
17
11
919
756
747
10.3
4.36
5.1
6.2
7.1
1.2
0.50
2%
271
260
-4 %
49
13 252
260
13 512
127
51
65
22 %
13 385
262
206
143 %
1%
153 %
252
198
5
5
1 436
1 300
1 238
24.3
20.6
9.4
10.4
13.2
5.1
8.70
3%
NRS SSC
Total Multiexp. Aq.Chile
67
69
4%
44
2 898
615
3 513
724
25
45
44 %
2 789
110
62
2%
21 %
-24 %
115
64
24
14
365
314
288
11.4
5.08
9.6
11.2
13.1
2.4
2.00
3%
Peers
4.40
N.R.
194
851 101 378
189 15 685
1 040 117 063
0 19 330
28
919
32
1 154
13 %
20 %
1 040 97 733
37
106
33
85
-66 %
0%
-60 %
7
1.0
90
N.R.
240
N.R.
1 411
1 540
1 721
3 261
150
51
82
38 %
3 111
61
38
1 157
3 351
2 260
5 611
600
79
134
41 %
5 011
63
37
-53 %
-54 %
34
28
FONDSFINANS AS, HAAKON VII’S GATE 2, P.O. BOX 1782 VIKA, NO-0122 OSLO, TEL: +47 23 11 30 00, FAX: +47 23 11 30 03, [email protected]
This report was prepared by an analyst engaged by Fondsfinans AS, the Norwegian affiliate of Fondsfinans Inc., who is not registered as a research analyst with FINRA or subject to
FINRA rules governing research. This report is not a product of Fondsfinans Inc. See page 31, 37, 43, 51, 58, 67 and 76 of this report for Important Disclosure Information.
Aquaculture Sector Report - 3Q15 Previews 6 October 2015
Updated supply/demand estimates (previous in brackets)
Models and calculations
based on EURNOK
currency ratio of 9.50
Headlines in supply estimates and estimate changes vs. July
estimates



2015 supply growth: 0.9% (2.9%)
o
Europe: 1.4% (3.9%)
o
Americas: 0.0% (0.7%)
2016 supply growth: 0.2% (0.2%)
o
Europe: 2.3% (3.4%)
o
Americas: -4.0% (-6.5%)
2017 supply growth: 0.3% (0.6%)
o
Europe: 3.1% (2.7%)
o
Americas: -5.7% (-4.0%)
The table below sums up our updated supply forecasts and historical
development in each of the main production regions. For 2015, we have
lowered our volume estimates for Norway due to the cold summer leading
to delayed feeding and biomass growth.
Our estimates for Norwegian harvesting take into account the proposed
new Norwegian regulations, including 45 green licenses, the 5% MAB
increase in existing licenses in September 2015 (short term growth) and
the introduction of rule-based regional MAB adjustments every 24 months
(both increases and reductions of 6%) based on environmental indicators
in 2016/2017, capping long term growth prospects.
Very moderate supply
growth outlook for 2016
onwards
Global supply outlook is very moderate, with 2015E supply up by around
1% (2.9%) Y/Y followed by 2016 and 2017 growth of 0.2% (0.2%) and
0.3% (0.6%) globally.
Forecasting negative
supply development for
Chile
We forecast Chilean supply of Atlantics to fall in the next years with continued
severe biological challenges (SRS in particular) and culling of smolt following the
Puerto Montt/Calbuco volcano eruption earlier this year. The termination of the
MHG/AquaChile transaction in June implies that it will take longer time to turn the
Chilean industry around and return to sustainable growth, which we believe is
dependent on further consolidation in the region. The leading feed companies
are reporting on expectations of lower sales volumes due to poor biology and
financials.
Global Supply Estimates per October 2015 - 1.000 t WFE
Atlantic Salmon
2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2009
Norway
741
856
945 1 006 1 183 1 142 1 198 1 228 1 258 1 296 16 %
UK
136
143
142
155
159
158
168
165
168
171
5%
Faroe Islands
35
47
42
56
70
72
82
70
72
77 34 %
Ireland
12
15
18
16
15
10
12
15
16
16 30 %
Iceland
1
1
1
1
3
3
4
5
6
7
0%
Russia
3
3
3
4
6
6
10
11
9
9
0%
European supply
927 1 065 1 150 1 238 1 436 1 392 1 473 1 494 1 529 1 576 15 %
Chile (sales)
404
239
130
221
364
467
572
539
516
472 -41 %
Canada
119
115
118
110
137
115
101
130
123
127 -3 %
US
17
16
18
18
20
20
20
20
20
20 -6 %
Oceania
26
32
33
36
39
39
39
43
44
44 23 %
Americas supply
566
403
299
385
559
641
733
732
703
663 -29 %
Global supply
Supply Y/Y
96
Change in Europ. vol. Y/Y
32
Change in Americas vol. Y/Y
Expecting negative
global volume growth
Y/Y in 2H15 driven by
lower Chile volumes
Page 2
1 493 1 467 1 449 1 623 1 995 2 033 2 206 2 227 2 232 2 239
7 % -2 % -1 % 12 % 23 % 1.9% 8.5% 0.9% 0.2% 0.3%
Change in global vol. Y/Y
-25
-18
174
372
37
173
21
5
138
85
88
198
-44
82
21
34
47
-164
-109
91
143
103
105
-33
-23
-44
-2 %
2010
10 %
-1 %
-11 %
17 %
0%
0%
8%
-46 %
2%
13 %
3%
-26 %
2011
6%
9%
34 %
-9 %
0%
33 %
8%
70 %
-7 %
2%
9%
29 %
2012 2013 2014
18 % -3 %
5%
3 % -1 %
6%
24 %
4 % 13 %
-4 % -33 % 14 %
0%
0 % 33 %
50 %
0 % 67 %
16 %
-3%
6%
65 % 28 % 23 %
24 % -16 % -12 %
7%
4 % -1 %
8%
0%
0%
45 % 15 % 14 %
-1 %
12 %
23 %
2%
9%
2015E 2016E 2017E
2.5 % 2.4 % 3.0 %
-2 %
2%
2%
-14 %
3%
6%
29 %
4%
4%
25 % 20 % 17 %
10 % -18 %
0%
1%
2%
3%
-6 % -4 % -9 %
28 % -6 %
3%
0%
0%
0%
10 %
2%
0%
0 % -4 % -6 %
1%
0%
0%
7
The table below indicates estimated change in global supply Y/Y on a monthly
basis.
5 October 2015
Fondsfinans Research
Change in global supply Y/Y (ex. trout and
2006
2007
January
4 600
7 300
February
-1 200
8 100
March
2 300
12 100
April
-7 000
9 900
May
7 900
9 200
June
7 800
14 400
July
-1 150
17 020
August
5 520
9 750
September
-6 580
7 050
October
3 460
15 300
November
5 840
10 100
December
-3 100
5 300
Volume increase Y/Y
18 390 125 520
Volumes (kt)
1 231
1 357
Supply growth Y/Y
2%
10 %
Vol growth 1H Y/Y
14 400
61 000
Vol growth 2H Y/Y
3 990
64 520
Source: Fondsfinans data and estimates
New products and
improved distribution
stimulate demand
coho). All
2008
10 600
11 100
-6 800
9 500
12 500
2 300
8 780
1 650
13 550
3 100
3 940
18 700
88 920
1 446
7%
39 200
49 720
major regions combined. Distributed month by month
2009
2010
2011
2012
2013
2014
10 400 -17 000
-1 900
28 000
26 000
0
1 300
-6 500
-4 400
36 400
9 900
4 500
13 300
-6 100
-600
47 000
-2 500
21 300
4 900 -15 100
8 100
31 900
9 400
23 600
-15 600
600
10 600
36 300
200
22 900
-9 400
8 600
10 000
39 700 -18 700
25 800
-8 500
4 100
18 100
26 300
-3 400
23 400
-6 600
-600
23 000
36 200
-6 100
24 900
-2 400
3 700
25 800
19 000
7 700
10 300
200
1 200
22 300
30 400
10 800
2 700
-8 740
6 500
28 300
25 300
3 300
-3 000
-9 300
-700
30 500
7 400
200
11 900
-30 440 -21 300 169 800 363 900
36 800 168 300
1 415
1 394
1 564
1 928
1 965
2 133
-2 %
-2 %
12 %
23 %
2%
8.6 %
4 900 -35 500
21 800 219 300
24 300
98 100
-35 340
14 200 148 000 144 600
12 500
70 200
2015E
4 500
8 700
12 200
-500
-1 000
11 600
-2 000
-6 100
-300
-13 300
-3 300
4 100
14 600
2 148
0.7 %
35 500
-20 900
2016E
200
600
-8 800
2 700
7 000
500
4 500
-1 500
-2 500
1 000
1 000
500
5 200
2 153
0.2 %
2 200
3 000
Headlines in consumption/demand estimates and estimate changes


2015 demand: 3.2% (4.1%)
o
Europe: 2.3% (1.5%)
o
Americas/Asia: 4.2% (7.2%)
2016 demand: 6.4% (6.3%)
o
Europe: 5.6% (6.2%)
o
Americas/Asia: 7.3% (6.5%)
Positive 2015 despite
Russia and Ukraine.
Positive development in
2016E as Russia and
Ukraine are out of the
numbers Y/Y
The table below sums up development in demand in the main global markets and
our estimates. Russia and Ukraine is substantially down in 2015. We expect the
import ban and Russian set-back to be a long-term issue. In addition to the ban,
the very weak rouble impacts Russian demand severely. Ukraine remains
affected by the Russian situation.
Distribution of
consumption
Global demand. Farmed Atlantics. Estimates per October 2015 - 1.000 t WFE
Global demand
2007 2008
2009
2010
2011
EU countries
709
744
766
739
794
Norway
26
34
27
40
42
Russia
73
75
78
100
132
Ukraine
14
18
19
18
19
European consumption
822
871
890
897
987
European consumption Y/Y
11 %
6%
2%
1%
10 %
US
306
295
277
258
285
Japan
45
47
39
33
45
Brazil
30
50
55
35
45
China/HK/Vietnam
30
40
45
54
70
Other markets*
168
175
170
180
190
Consumption in Americas & Asia
579
607
586
560
635
Consumption Americas+Asia Y/Y
10 %
5%
-4 %
-4 %
14 %
Global demand/consumption
1 400 1 478 1 476 1 456
1 623
Consumption growth Y/Y
11 %
6%
0%
-1 %
11 %
Ending stocks / net balance
1
16
7
0
0
European supply
895
927 1 065 1 150
1 238
European supply/consumption balance
74
56
175
253
251
European supply/consumption ratio
9%
6 % 20 % 28 %
25 %
No of flights from Europe (fillets)
721
550 1 708 2 481
2 453
Est # flights from Europe/week
14
11
34
50
49
Significant
strengthening of EUR
vs NOK stimulating
demand in core
European markets
Strong consumption
growth in Asia expected
to continue
Strong USD – positive
for the US market long
term
5 October 2015
2012
918
34
172
26
1 150
16 %
345
63
72
82
278
840
32 %
1 990
23 %
6
1 436
286
25 %
2 803
56
2013
907
35
157
29
1 129
-2 %
370
59
86
99
293
907
8%
2 036
2%
3
1 392
263
23 %
2 575
51
2014 2015E
984 1 058
40
44
136
94
17
8
1 177 1 204
4%
2%
389
415
63
53
95
99
117
120
350
370
1 014 1 056
12 %
4%
2 191 2 260
8%
3%
18
-15
1 473 1 494
297
290
25 % 24 %
2 905 2 840
58
57
2016E Av.06-14
1 122
5%
47
8%
96 11 %
7
7%
1 272
6%
6 % 3.2 %
449
3%
54
3%
105 23 %
125 21 %
400 15 %
1 133 8.4 %
7%
2 405
7%
6.4 %
-189
1 529
257
20 %
2 517
50
Page 3
Aquacu
ulture Sector Report
R
- 3Q15 Previews 6 October 2015
5
Atlantics, glo
obal market share
e
EU countries
Norway
Russia
Ukraine
European co
onsumption
US
Japan
Brazil
etnam
China/HK/Vie
Other marketss*
Consumption
n in Americas & Asia
A
Source: Fond
dsfinans Research
on/demand
Consumptio
growth ratess per markett
Y/Y
Calculated cconsumption
n
per market (2014) –
Norway on top, followed
d
by the EU a
and the US
Consumption grrowth Y/Y
EU countries
Norway
Russia
Ukraine
umption
European consu
US
Japan
Brazil
m
China/HK/Vietnam
Other markets*
Consumption in Americas & Asia
Americas/Asia consumption
c
share
Global consumtio
on growth Y/Y
Source: Fondsfina
ans Research
2007
9%
8%
4 %
44
1 %
17
11 %
4%
6%
2 %
20
2 %
20
2 %
20
10 %
41 %
1 %
11
2007
51 %
2%
5%
1%
59 %
22 %
3%
2%
2%
12 %
41 %
2008
5%
31 %
3%
29 %
6%
-3 %
5%
67 %
33 %
4%
5%
41 %
6%
2009
3%
-21 %
5%
6%
2%
-6 %
-17 %
10 %
13 %
-3 %
-4 %
40 %
0%
20
008
50
0%
2%
5%
1%
59
9%
20
0%
3%
3%
3%
12
2%
41
1%
2010
-4 %
48 %
27 %
-5 %
1%
-7 %
- %
-16
- %
-36
20 %
6%
-4 %
38 %
-1 %
2009
52 %
2%
5%
1%
60 %
19 %
3%
4%
3%
12 %
40 %
2011
7%
5%
33 %
6%
10 %
11 %
37 %
29 %
30 %
6%
14 %
39 %
11 %
201
10
51 %
3%
7%
1%
62 %
18 %
2%
2%
4%
12 %
38 %
2012
16 %
-19 %
30 %
37 %
16 %
21 %
39 %
60 %
17 %
46 %
32 %
42 %
23 %
2011
49 %
3%
8%
1%
61 %
18 %
3%
3%
4%
12 %
39 %
2013
-1 %
3%
-8 %
12 %
-2 %
7%
-6 %
19 %
21 %
5%
8%
45 %
2%
2014
8%
14 %
-14 %
-41 %
4%
5%
6%
10 %
18 %
19 %
12 %
46 %
8%
2012
46 %
2%
9%
1%
58 %
17 %
3%
4%
4%
14 %
42 %
2015
5E
8%
10 %
-31 %
-53 %
2%
7%
-16 %
4%
3%
6%
4%
47 %
3%
2013
45 %
2%
8%
1%
55 %
18 %
3%
4%
5%
14 %
45 %
2014
4 2015E
45 % 47 %
2%
2%
4%
6%
0%
1%
54 % 53 %
18 % 18 %
3%
2%
4%
4%
5%
5%
16 % 16 %
46 % 47 %
2016E
47 %
2%
4%
0%
53 %
19 %
2%
4%
5%
17 %
47 %
2016E Av.06-14 P op. (m) WFE kg/cap.
6%
5%
507
1.9
5
8.0
7%
9%
2%
15 %
144
0.9
-13 %
7%
44
0.4
6%
6%
700
1.7
8%
4%
320
1.2
3%
7%
126
0.5
6%
22 %
203
0.5
4%
21 %
1357
0.1
8%
13 %
321
1.1
7%
9%
2 327
0.4
47 %
3 027
0.7
6%
43 %
LSG launch
hing new
product seri
ries in
Norway in A
August,
guaranteein
ng a higher
omega-3 co
ontent, no
use of antib
biotics and
full traceabiility
Stimulating demand
WI salmon forr
MHG MOW
Asian high-e
end marketss
Page 4
5 October 2015
Fondsfina
ans Research
h
Aquaculture Sector Reportt - 3Q15 Previews 6 Octob
ber 2015
MHG Harbo
our brand forr
the UK, ram
mping up the
new Edinbu
urgh/Rosyth
Morpol plan
nt after
signing long
g-term
contract with
th Sainsbury
according to
o BBC article
e
At 2Q15 Marine Harvvest confirm
med that it ha
ad gained a long-term contract with
one of th
he leading U
UK retailers.. The Sainbury’s contraact will take effect from
Novembe
er, and inclu des fresh VA
AP and smo
oked salmonn products. According
A
to
the BBC,, MHG will increase the
e workforce at
a the Rosytth Edinburgh
h plant from
90 to abo
out 350 over the next yea
ar, stepping up
u productionn five-fold.
Furtherr market d
details – Supply/dem
mand and productio
on cost
e below sum s up the harrvesting volumes of the liisted Norweg
gian salmon
The table
farmers and
a guidancce for 2015. Aggregated, the compannies have re
educed their
guidance
e of harvestin
ng growth in Norway in 20
015 from 5.33% at 1Q to 2.5%
2
at 2Q.
This is in
n line with ou
ur estimates for the Norw
wegian indusstry as a who
ole, and the
change at
a 2Q illustra
ates the effe
ects of the co
old Norwegiaan summer this year in
particularr.
1Q guida
ance:
Norwegian p
players have
e
reduced the
eir guidance
to 2.5% (5.3
3%)
harvesting g
growth in
2015 followi
wing a cold
summer and
d delayed
feeding
Norwegiaan harvesting volumes and guiding (HOG
G t)
Company
y
2012
2013
2014
20
015G
MHG Norw
way
20
08 956 223 1
110 262 006
Cermaq
3
37 100
39 9
900
50 500
11
16 800 137 1
100 153 300
Lerøy
3
33 544
32 1
129
39 327
Grieg
7
76 750
100 2
200 109 500
Salmar
1
10 700
18 7
700
21 100
NRS
48
83 850 551 1
139 635 733
SUM
14
4 %
15 %
Volumes Y/Y
ompanies, Fondsfinans Ressearch
Source: Co
2010
20
011
222 494
50 900
144 800
38 164
115 356
25 191
596 905
‐6 %
258 000
48 400
158 300
39 200
135 200
22 400
661 500
11 %
266
6 000
51
1 300
166
6 000
42
2 500
139
9 000
32
2 000
696
6 800
5
5.3 %
2 Guidan
nce:
Norwegiaan harvesting volumes, guiiding and theo
oretical capaccity (HOG t)
Company
y
MHG Norway
Cermaq
Lerøy
Grieg
Salmar
NRS
SUM
Volumes Y/Y
2010
20
011
2012
2
2013
2014
2
2015G
20
08 956
3
37 100
11
16 800
3
33 544
7
76 750
1
10 700
48
83 850
223 1
110
39 9
900
137 1
100
32 1
129
100 2
200
18 7
700
551 1
139
14
4 %
262 006
6
50 500
0
153 300
0
39 327
7
109 500
0
21 100
0
635 733
3
15 %
%
222 494
50 900
144 800
38 164
115 356
25 191
596 905
‐6 %
258 000
48 400
158 300
39 200
135 200
22 400
661 500
11 %
25
57 000
4
47 300
16
66 000
3
38 300
13
39 000
3
30 500
67
78 100
2.5 %
5 October 2015
Page 5
Norwegian sea water biomass ('000 t WFE). Fondsfinans estimates
1998 1999 2000 2001 2002 2003 2004 2005
The Norwegian
standing biomass
currently more or less
stable Y/Y – Number of
individuals should be
slightly up, but the
average weight
somewhat down due to
delayed feeding
Jan
222
Feb
218
Mar
198
Apr
190
May
193
Jun
201
Jul
221
Aug
245
Sep
270
Oct
282
Nov
281
Dec
268
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Source: Fondsfinans
265
255
238
226
225
230
242
260
283
287
284
264
20 %
17 %
20 %
19 %
17 %
14 %
10 %
6%
5%
2%
1%
-1 %
Reseach
260
251
235
227
231
237
262
297
319
330
331
312
-2 %
-1 %
-1 %
1%
3%
3%
8%
14 %
13 %
15 %
16 %
18 %
306
293
280
269
261
264
286
314
338
350
340
330
18 %
17 %
19 %
18 %
13 %
11 %
9%
6%
6%
6%
3%
6%
316
301
279
268
263
267
292
314
332
353
362
350
3%
3%
0%
0%
1%
1%
2%
0%
-2 %
1%
7%
6%
343
333
316
304
302
308
317
334
354
365
362
341
9%
11 %
13 %
13 %
15 %
15 %
9%
6%
7%
3%
0%
-3 %
327
313
294
287
291
299
317
348
366
376
374
343
-5 %
-6 %
-7 %
-6 %
-4 %
-3 %
0%
4%
3%
3%
3%
1%
335
322
298
279
281
288
311
351
378
397
396
376
2%
3%
1%
-3 %
-3 %
-4 %
-2 %
1%
3%
5%
6%
9%
2006
2007
2008
2009
2010
2011
2012
2013
364
344
317
301
304
314
353
391
421
446
442
421
8%
7%
6%
8%
8%
9%
14 %
11 %
11 %
12 %
11 %
12 %
415
397
385
381
369
363
394
435
464
496
487
466
14 %
15 %
22 %
27 %
21 %
15 %
11 %
11 %
10 %
11 %
10 %
11 %
455
433
411
393
383
386
411
450
494
523
528
517
10 %
9%
7%
3%
4%
6%
4%
3%
6%
5%
8%
11 %
503
486
458
438
434
452
493
543
583
610
617
598
11 %
12 %
11 %
11 %
13 %
17 %
20 %
21 %
18 %
17 %
17 %
16 %
579
550
510
489
483
487
514
565
605
628
630
608
15 %
13 %
11 %
12 %
11 %
8%
4%
4%
4%
3%
2%
2%
589
566
531
509
508
515
549
609
662
691
695
669
2%
3%
4%
4%
5%
6%
7%
8%
9%
10 %
10 %
10 %
657
637
603
580
572
560
597
645
695
725
716
689
12 %
13 %
13 %
14 %
13 %
9%
9%
6%
5%
5%
3%
3%
670
631
589
558
540
547
592
664
698
735
713
694
2%
-1 %
-2 %
-4 %
-5 %
-2 %
-1 %
3%
0%
1%
0%
1%
2014 2015E
687
672
642
613
596
601
632
685
709
745
734
725
2%
7%
9%
10 %
10 %
10 %
7%
3%
2%
1%
3%
4%
718
699
661
640
616
610
632
684
708
744
733
725
5%
4%
3%
4%
3%
1%
0%
0%
0%
0%
0%
0%
2016E
719
699
662
641
620
615
639
695
721
759
749
742
0%
0%
0%
0%
1%
1%
1%
2%
2%
2%
2%
2%
2Q headlines from Chile – Challenging biology, continued losses and
expectations of lower volumes ahead
The Chilean industry remains in a very challenging situation, with biological
issues driving cost, while high volumes YTD have dampened price achievement.
At 2Q AquaChile reported a Sales of Atlantic salmon were up 50% by volume,
while prices were down 23% Y/Y. Consequently, the company reported a
negative operational EBIT of USD 1.1/kg WFE for Atlantics, while the loss from
sea trout was USD 1.6/kg WFE. In total, the company reported an EBIT loss pre
fair value adjustments of USD 27m in the quarter, illustrating the need for
restructuring in Chile. Interestingly, AquaChile now guides on a reduction of 18%
Y/Y for salmon volumes in 3Q15, while trout is expected up. For all salmonids
combined, the company guides on a reduction of 5% Y/Y in 3Q.
Similar to AquaChile, Multiexport reported a 2Q operational EBIT loss of around
USD 12m, making losses of close to USD 0.80/kg WFE for Atlantics.
The feed companies guide on lower feeding volumes in Chile ahead. BioMar
sees a contracting market and challenging second half of 2015, pointing out that
“prices of farmed fish remain very low in Chile, and most fish farmers incurred
losses in the first half of the year”.
EWOS comments that while the Chilean feed market grew by 1%, expectations
for the full year is a volume reduction of 4%, “which may be explained by a
combination of biological challenges, low prices for Atlantic salmon in the US
market, and financial constraints among several players in the industry”.
Five large players in
Chile – Volumes down
9% in 2015E
Chile guiding – Indication of volume per company. Five large players
together should be down around 9% Y/Y
The table sums up harvesting/sales volumes for five of the leading Chilean
salmon farmers, showing a reduction of 9% guided/expected for 2015.
Chile vol. guidance/indications
2013
2014
Reg X
Reg XI
Reg XII
AcuiNova
18 000
14 000
15 000
30 000
36
0
36
0
MHG Chile (ex Acuinova)
28 281
65 000
51 000 120 000
166
101
65
0
AquaChile (sales)
96 800
94 800
92 400 110 000
151
56
95
0
Multiexport (sales)
41 000
61 500
56 500
75 000
92
23
69
0
CEQ ex Humboldt
74 900
73 100
64 500
90 000
96
65
19
12
258 981 308 400 279 400 425 000
541
5 large; com bined
Y/Y volumes, 5 large in Chile
Industry volum es (HOG)
5 large in % of industry
19 %
2015E Capacity Total lic.
-9 %
671 500 760 000 703 000 900 000
39 %
41 %
Distribution of licenses
40 %
245
284
12
45 %
52 %
2%
1 162
517
589
56
47 %
47 %
48 %
21 %
44 %
51 %
5%
Global supply; harvesting profile month per month – All major regions
together
Page 6
5 October 2015
Global supply:
1Q: +5% Y/Y
2Q: +2% Y/Y
3Q: -2% Y/Y
4Q: -2% Y/Y
Prices should continue
to climb
Global supply of Atlantic salmon, All major regions (ex. Coho and trout). WFE tonnes '000
2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 07/06 08/07
January
101
112
122
105
103
131
157
157
162
162 8 % 11 %
February
97
108
110
103
99
135
145
150
158
159 9 % 11 %
March
117
110
124
117
117
164
161
183
195
186 12 % -6 %
April
101
110
115
100
108
140
149
173
172
175 11 % 9 %
May
109
121
106
106
117
153
153
176
175
182 9 % 11 %
June
113
116
106
115
125
165
146
172
183
184 15 % 2 %
July
106
115
107
111
129
155
152
175
173
178 19 % 8 %
August
112
114
107
106
129
166
159
184
178
177 10 % 1 %
September
110
123
121
125
151
170
177
188
187
185 7 % 12 %
October
128
131
131
133
155
185
196
199
185
186 14 % 2 %
November
135
139
130
137
165
190
194
191
187
188 8 % 3 %
December
128
147
138
137
167
175
175
187
191
191 4 % 15 %
Year
1 357 1 446 1 415 1 394 1 564 1 928 1 965 2 133 2 148 2 153 10 % 7 %
1Q supply
315
330
355
325
319
430
463
489
515
507 10 % 5 %
2Q supply
323
347
327
321
350
457
448
521
531
541 12 % 8 %
3Q supply
328
352
335
342
409
490
488
547
539
539 11 % 7 %
4Q supply
391
417
399
406
487
550
565
576
564
566 9 % 7 %
09/08
9%
1%
12 %
4%
-13 %
-8 %
-7 %
-6 %
-2 %
0%
-6 %
-6 %
-2 %
8%
-6 %
-5 %
-4 %
10/09
-14 %
-6 %
-5 %
-13 %
1%
8%
4%
-1 %
3%
1%
5%
-1 %
-2 %
-8 %
-2 %
2%
2%
11/10
-2 %
-4 %
-1 %
8%
10 %
9%
16 %
22 %
21 %
17 %
21 %
22 %
12 %
-2 %
9%
20 %
20 %
12/11 13/12
27 % 20 %
37 %
7%
40 % -2 %
30 %
7%
31 %
0%
32 % -11 %
20 % -2 %
28 % -4 %
13 %
5%
20 %
6%
15 %
2%
4%
0%
23 %
2%
35 %
8%
31 % -2 %
20 %
0%
13 %
3%
14/13
0%
3%
13 %
16 %
15 %
18 %
15 %
16 %
6%
1%
-2 %
7%
9%
6%
16 %
12 %
2%
15/14 16/15
3%
0%
6%
0%
7 % -5 %
0%
2%
-1 %
4%
7%
0%
-1 %
3%
-3 % -1 %
0 % -1 %
-7 %
1%
-2 %
1%
2%
0%
1%
0%
5 % -2 %
2%
2%
-2 %
0%
-2 %
0%
European supply month by month
Stable supply for 3Q
and 4Q Y/Y.
Next winter slightly up
European supply. WFE ' t Atlantics
2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016E
January
60
67
73
83
83
100
107
106
105
110
February
61
73
69
83
81
101
94
98
103
106
March
76
73
82
98
94
125
109
116
128
132
April
62
70
82
80
87
102
100
117
116
121
May
72
79
80
85
93
112
110
122
120
128
June
76
75
81
96
100
125
103
121
125
130
July
67
71
83
92
98
112
106
121
119
125
August
70
69
83
86
98
122
112
127
124
124
September
77
78
98
105
116
123
133
130
133
132
October
85
88
109
110
120
135
143
140
132
133
November
97
88
107
114
130
142
142
132
134
135
December
89
92
113
114
133
128
125
129
137
138
Total
891
923 1 061 1 146 1 233 1 427 1 383 1 459 1 478 1 514
1Q supply
197
213
225
263
258
326
310
320
336
348
2Q supply
210
224
243
262
280
339
313
360
362
379
3Q supply
214
218
264
283
311
357
350
378
376
380
4Q supply
270
268
329
339
383
405
410
401
404
407
Source: Fondsfinans Research
Y/Y
10/09 11/10 12/11 13/12 14/13 15/14 16/15
13 % 1 % 20 %
7 % -1 % -1 % 4 %
19 % -3 % 26 % -7 % 5 % 5 % 3 %
19 % -3 % 33 % -13 % 6 % 11 % 3 %
-3 % 8 % 18 % -2 % 17 % -1 % 4 %
7 % 9 % 21 % -2 % 11 % -2 % 7 %
19 % 4 % 24 % -18 % 18 % 3 % 4 %
10 % 7 % 15 % -6 % 15 % -1 % 5 %
4 % 13 % 25 % -8 % 14 % -2 % 0 %
7 % 11 % 6 %
8 % -2 % 2 % -1 %
1 % 9 % 12 %
6 % -2 % -6 % 1 %
7 % 14 % 9 %
0 % -7 % 2 % 1 %
1 % 16 % -3 % -2 % 3 % 7 % 1 %
8 % 8 % 16 % -3 % 6 % 1 % 2 %
17 % -2 % 26 % -5 % 3 % 5 % 3 %
8 % 7 % 21 % -8 % 15 % 0 % 5 %
7 % 10 % 15 % -2 % 8 % 0 % 1 %
3 % 13 % 6 %
1 % -2 % 1 % 1 %
Norwegian feeding profile – Stable 2015 feeding Y/Y. Feeding down
between 1-2% YTD. 2016 feeding stipulated to around 2% growth
5 October 2015
Page 7
Aquacu
R
5
More use off wrasse fish
h
in spring de
elousing this
year
c
summerr conditions feeding is delayed
d
thiss year. Feed
ding YTD is
Due to cold
down bettween 1-2% and we fore
ecast full year around 0%
% growth. Itt will not be
possible to catch up
p the delaye
ed feeding before the w
winter even sea water
conditions lately have
e normalized.
Also new te
echnologies
approved an
nd
implemente
ed this year
al Norwegia
an feeding distributed per quarter. 22015-2016 is
s based on
Historica
Fondsfin
nans estima
ates
Norwegian feediing
1Q
2Q
3Q
4Q
Full year, salm on
nids
1Q
2Q
3Q
4Q
Full year feeding Y/Y
Norwegian harve
est
2005
125 100
180 800
347 400
252 900
906 200
6%
1%
13 %
24 %
12 %
2005
2006
2007
2008
2009
2010
2
2011
2012
2013
2014
2015E
E
2016E
2017E
127 700
178 900
175 500
183 400
187 500
187
7 800
275 800
213 000
0
285 500
302 700
0
286 000
286 000
192 500
236 300
233 000
2 800
272
269 800
286
6 100
320 500
293 000
0
346 900
335 200
0
343 580
352 170
375 700
420 100
433 800
5 100
507
516 700
585
5 300
602 000
631 000
0
606 600
590 000
0
604 750
619 869
292 400
306 300
352 500
4 100
406
391 300
449
9 900
464 000
484 000
0
503 000
513 000
0
539 975
545 074
988 300 1 141 600 1 194 800 1 369
3 400 1 365 300 1 509
9 100 1 662 300 1 621 000
0
1 742 000 1 740 900
0 1 774 305 1 803 113
2%
40 %
-2 %
5%
2%
0%
47 %
-23
3%
34 %
6%
-6 %
0%
6%
23 %
-1 %
17 %
-1 %
6%
12 %
-9
9%
18 %
-3 %
2%
2%
8%
12 %
3%
17 %
2%
13 %
3%
5%
-4 %
-3 %
2%
2%
16 %
5%
15 %
15 %
-4 %
15 %
3%
4%
4%
2%
5%
1%
9%
2%
7%
0%
2%
2%
16 %
5%
15 %
0%
11 %
10 %
-2
2006
2007
1Q
124 900
140 000
163 600
2Q
131 200
133 700
171 800
3Q
139 200
131 600
172 000
4Q
177 000
191 100
213 300
Full year, Atlantic
cs, 572 300
596 400
720 700
12 %
1Q
17 %
2%
2Q
28 %
-5 %
3Q
31 %
8%
4Q
12 %
Full year harvest ing, Atlantics
21 %
4%
45 new green lice
enses into harvesting (2
22 licences
2008
2009
2010
2
2011
2012
2013
2014
2015E
E
2016E
2017E
171 700
181 300
217 300
211
1 300
268 700
258 000
0
263 100
289 900
0
287 000
295 610
196 100
216 700
225
5 300
281 400
255 500
5
293 700
297 900
0
315 000
324 450
180 600
171 400
2 000
213
232 200
253
3 900
295 000
286 900
9
307 400
305 500
0
313 000
322 390
216 800
2 300
265
278 700
315
5 500
338 000
342 000
0
334 000
335 000
0
343 000
353 290
740 500
8 700
855
944 900 1 006
6 000 1 183 100 1 142 400
4
1 198 200 1 228 300
0 1 258 000 1 295 740
5%
6%
20 %
-3 %
27 %
-4 %
2%
10 %
-1 %
3%
5%
9%
11 %
4%
25 %
-9
9%
15 %
1%
6%
3%
0%
24 %
9%
9%
16 %
-3
3%
7%
-1 %
2%
3%
2%
22 %
5%
13 %
7%
1%
-2 %
0%
2%
3%
3%
16 %
10 %
3%
5%
2.5 %
2.4 %
3.0 %
6%
18 %
-3
to be harves
sted in 2017E)
8
15
18
Average sea water ttemperature
es in Norway through th
he year: Co
old summer
conditions leading tto delayed feeding
The charrts below illu
ustrate the development
d
t in sea watter temperattures in the
various Norwegian
N
co
ounties. The mild winter contributed
c
tto relatively high
h
feeding
in 1H15. However, as the sum
mmer was unusually colld, feeding and growth
develope
ed below norrmal. Curren
nt conditions have normaalized from September.
Currently
y in some are
eas, sea wa
ater temperattures are evven warmer than
t
normal
stimulatin
ng feeding.
Page 8
5 October 2015
Fondsfina
ans Research
h
Source: FHL
The chart below shows sea water temperatures in the Norwegian salmon farming
counties as of the end of August 2015. All counties having lower sea water
temperatures than last year and 2013.
5 October 2015
Page 9
Aquacu
R
5
Fish Pool fo
orward curve
e
The charrt below show
ws the latestt Fish Pool fo
orward curvee measured in EUR. The
market expects
e
price
es to pick up in November and Decem
mber as usua
al.
Prices are e
expected to
climb towarrds
Christmas.
NOK 45/kg levels for
the winter ccurrently
Source: Fish
F
Pool
SalmonE
Ex Index (US
SD/lb) fresh D trim filletts FOB Miam
mi – Weak price
achievem
ment for Ch ilean salmo
on YTD
Current D-trrim price:
USD 3.54/Ib
b equal to
NOK 65/kg fillet
Equal to NO
OK 40/kg perr
HOG salmo
on
Cargo from Chile to the
US: ~NOK 9
9-10/kg backk
to HOG plan
nt
Farm gate p
price back to
o
HOG plant iin Chile of
around NOK
K 30/kg
The spread
d between
European p
prices and
Chilean pricces are
present at rrecord levels
As an illu
ustration of th
he developm
ment of Chilean price achhievement the
e table
below giv
ves an overvview of the Sa
almonEx refe
erence price for fresh D trim
t
fillets –
prices are
e up approxi mately 18% from the trou
ugh in Decem
mber 2014. The
T
majority of
o Chilean filllets is, howe
ever, still C trim that norm
mally trades around
a
0.2
USD/Ib below
b
D-trim..
The charrt below give
es an overvie
ew of the dev
velopment inn Chilean refference fillet
prices FO
OB Miami (fre
esh D trim), with
w continue
ed high volum
mes putting pressure on
prices. Volumes
V
have
e been high
h due to SRS
S-driven harrvesting (in combination
c
with selling out of frozen stocks) in parrticular in rregion XI. The
T
recent
developm
ment in the US market with Costco
o increasinglly switching away from
Chilean salmon
s
in fa
avour of Eurropean goods illustrates that the currrent use of
antibiotics in Chile in general, and
d in region XI
X in particulaar, is not susttainable. As
n effective vvaccine again
nst SRS exis
sts, operationns in region XI will have
long as no
to be turn
ned around w
with increase
ed fallowing, and we exppect prices to
o pick up as
supply grrowth turns n
negative Y/Y.
The figurre below sho
ows the relattive developm
ment in salm
mon prices compared
c
to
FAO’s index of meatt prices. Feed raw materrial prices affffect the prod
duction cost
of meat significantly
s
more, and faster
f
than fo
or salmon. A
As crop base
ed feed raw
material prices
p
have ccome down, meat prices
s have becom
me more com
mpetitive vs.
salmon, especially
e
in the US mark
ket.
Chile refere
ence prices
Y/Y (USD/lb
b). Source:
SalmonEx
Page 10
5 October 2015
Fondsfina
ans Research
h
5% capacity growth
confirmed – We expect
40% of farmers to
purchase extra capacity
The figure below shows the relative development in salmon prices compared to
FAO’s index of meat prices. Feed raw material prices affect the production cost
of meat significantly more, and faster than for salmon. As crop based feed raw
material prices have come down, meat prices have become more competitive vs.
salmon in the US market. However, the significant weakening of the NOK vs
USD, EUR and GBP has made Norwegian salmon increasingly in the market.
240
220
200
180
160
140
120
100
80
FAO meat prices (USD index)
Salmon prices (USD index)
The Norwegian Government allows for up to 5% aquaculture growth with
very stringent sea lice demands
On June 18 the Norwegian Government confirmed that all Norwegian salmon
farmers will be offered to increase production capacity (maximum allowed
biomass, MAB) by 5%. This growth is permitted on the basis of very strict
environmental demands regarding lice, however the limit is a maximum of 0.2
sea lice per fish on average (which is in line with MHG’s suggestion in the
hearing process), up from 0.1 in the original proposal. A maximum of two
chemical treatments are allowed per production cycle (generation).
Farmers will be charged NOK 1m for the capacity increase, equivalent to NOK
20m for a full license, so it will be financially attractive for farmers in regions with
good biology to purchase additional capacity. The application deadline was 1
September.
Free call option
In September, the Ministry of Trade, Industry and Fisheries announced that 88%
of farmers had in fact applied for the 5% additional capacity, as listed below.
However, the application is in reality a free call option, as it is non-binding for the
companies. The companies can use the time up to December 2016 to assess
whether actually to pursue additional capacity and committing to stricter
regulations. The fact that 89% of farmers in a core farming region like NordTrøndelag have applied, even though sea lice issues are very severe, illustrates
this point.
5 October 2015
Page 11
Even though the slightly less strict sea lice limit of 0.2 might imply somewhat
higher growth than the original proposal of 0.1, we maintain our assumption that
around 40% of farmers will accept the offer, implying 2.1% Norwegian capacity
growth in 2016.
The short-term growth offer is the first step towards implementing a more
sustainable and safe farming regime in Norway, which we believe will contribute
to lower risk and production cost over time.
Norwegian standing
biomass and maximum
allowed biomass (MAB:
equal to theoretical
farming capacity)
The chart below gives an overview of the Norwegian standing biomass and the
maximum allowed biomass, including effects of new regulations in 2016/2017.
1 000
Norwegian standing biomass - '000 ton wfe and theoretical farming capacity
900
800
700
600
500
400
300
200
Traffic lights regulating
farming capacity (both
capacity increase and
decrease)
Page 12
New longer term regulatory system in Norway: Introducing biological
indicators acting as traffic lights in aquaculture in late 2016E/early 2017E




Red: Reduced capacity (-6% MAB)
Yellow: Stable capacity (+0%)
Green: Growth (+6%)
Stipulated capacity growth for Norway: 1.4%
5 October 2015
Room for growth in
north, reductions in
south
Aggregate growth of
1.4% estimated in 2017
Broad agreement in
Parliament on
introduction of biological
indicator
Chile – Asia/Europe
channel: Frozen only
Fresh channel towards
the US and Brazil
County
# sites Licenses Green Tot. Lic. 5% (2015) Post 5% Traffic light* 6% adj 2017
Finnmark
63
91
10
101
5
106
6
Troms
53
98
21
119
6
125
7
Nordland
144
173
6
179
9
188
11
Nord-Trøndelag
50
73
2
75
75
Sør-Trøndelag
60
105
1
106
106
Møre og Romsdal
70
119
1
120
120
Sogn og Fjordane
56
92
0
92
92
-6
Hordaland
151
167
4
171
171
-10
Rogaland
56
73
0
73
73
4
Agder
9
17
0
17
1
18
1
Norw ay
712
1008
45
1053
21
1074
15
Capacity increase
2.1 %
1.4 %
*) Fondsfinans assessment based on current situation
Global trade flows – Transport cost
The illustration below provides an indication of cargo cost between the different
regions for fresh and frozen volumes. We expect to see increased export from
Europe to the US as Chilean supply is expected to drop off.
Norway/Europe: Fresh
channels towards Asia,
the US and Europe
Norway: Only 5-6% of
volumes frozen. 12-14%
frozen share ten years
ago
Fresh fish demand
expanding
Reference price – Reference cost
The table below indicates our reference salmon prices based on updated supply
and demand estimates. Our price models are based on Europe being the global
price leader, with US and Asian CIF prices are adjusted for cargo from Europe
and Chile.
Stronger EURNOK ratio
contributing to higher
price assumptions
measured in NOK. The
FX sensitivity is high
European reference price in Model – Close to 5 EUR / kg in 2016E
maintained – EURNOK ratio up lately
5 October 2015
Page 13
Last 2 years prices
measured in EUR has
fallen, we forecast
prices to climb in EUR
and NOK next years
Norwegian export price (HOG)
European demand
2012
16.5 %
2013
-1.8 %
2014
4.2 %
European supply
16.0 %
-3.1 %
5.9 %
1.4 %
2.3 %
3.40 %
-0.4 %
-1.3 %
1.6 %
-0.9 %
-3.3 %
-2.80 %
7.47
7.81
8.41
8.92
9.50
8.77
Net European supply
EURNOK ratio
EUR reference price/kg
2015E
2.3 %
2016E July Report*
5.6 %
6.20 %
3.70
5.08
4.88
4.76
4.92
4.94
27.63
39.71
41.04
42.43
46.76
43.3
European price (NOK/kg) Y/Y
12.07
1.33
1.39
4.33
European price (EUR/kg) Y/Y
1.39
-0.20
-0.12
0.16
Norwegian export price (NOK/kg)
*) August report EURNOK settled at 9.12
Global reference prices.
Europe is the price
leader. Calculating
prices in the US and
Chile on back of Europe
being the price leader
Asia, CIF airport, HOG eq.
2012
2013
2014
2015E
2016E
8
9
9
8
8
35.6
48.7
50.0
50.4
54.8
1.5
2.0
2.0
2.0
2.0
2012
2013
2014
2015E
2016E
Freight to the US (Norway)
6.5
7.0
7.0
6.0
6.0
CIF USA (East Coast/NYC)
34.1
46.7
48.0
48.4
52.8
8
9
9
9
9
Airfreight, Europe/Asia
CIF airport, Asia
Consumer paid freight
USA, CIF price, HOG eq.
Cargo Chile/US Miami
Cargo Miami-NYC
Page 14
2
2
2
2
2
USDNOK ratio
USD price, HOG eq.
Farm gate price, Chile (NOK)
5.95
5.74
24.1
5.88
7.94
35.7
6.36
7.55
37.0
7.95
6.09
37.4
8.40
6.28
41.8
USA/Canada, HOG eq.
Domestic cargo, US
CIF USA (West Coast)
Truck cargo from Canada
Price, FOB plant, Canada (NOK)
2012
2.5
31.6
3.0
28.6
2013
2.5
44.2
2.0
42.2
2014
2.5
45.5
2.0
43.5
2015E
2.5
45.9
2.0
43.9
2016E
2.5
50.3
2.0
48.3
5 October 2015
Reference cost. Norwegian farmers using the Norwegian profitability
survey. The El Niño present in Peru will lead to more expensive fish feed
measured in NOK Y/Y
Average reference cost
developments in
Norway: Using the
reference model and
qualify the specific
company performing
better of
underperforming peer
We assume that the 2H15 Peru fishing season will be effectively cancelled. Fish
meal and fish oil prices will start to climb again as a result. At the same time we
assume that the 1H 2016 fishing season in Peru probably should be arranged.
At 1Q15 most of the leading Norwegian farmers confirmed that they expect
production cost to come down post 2Q15, driven by both lower feed prices, as
well as improving biology and less use of chemicals for delousing. These
statements seem not to materialize. Cost per kilo, measured in weaker NOK, is
still climbing. We assume that raw material prices will continue to climb again due
to tight pelagic raw material supply and assuming the 2H15 fishing season in
Peru being cancelled.
The table below sums up the development in the main cost elements for
Norwegian farmers. We increase the reference cost in models by around NOK
2/kg vs. latest note.
Reference cost. Norway*
2009
2010
2011
2012
Smolt cost per HOG kg
2.2
2.5
2.8
2.4
Economic feed factor (wfe)
1.26
1.31
1.24
1.21
Economic feed factor (HOG)
1.42
1.47
1.39
1.36
Biological feed factor (wfe)
1.10
1.10
1.10
1.10
Implied mortality, pst
15 %
19 %
13 %
10 %
Fish feed price/kg feed
8.0
8.2
8.9
8.9
Fish feed per HOG kg
11.1
12.0
12.4
12.2
Insurance
0.2
0.2
0.2
0.1
Salaries/manpower
1.4
1.9
2.0
1.7
Depreciation
1.1
1.3
1.4
1.3
Other/biological costs
3.6
3.8
4.4
4.0
Wellboat/harvesting/packing
2.6
3.1
3.7
3.0
Prod. cost, HOG, FOB plant
22.1
24.8
26.9
24.6
Cargo Oslo
0.7
0.7
0.7
0.7
Prod. cost, HOG, FOB Oslo
22.8
25.5
27.6
25.3
Production cost Y/Y
2.8
2.0
-2.3
* Historical data, Norwegian profitab ility survey. Fondsfinans estimates
2013
2.4
1.25
1.40
1.10
14 %
9.2
12.9
0.1
2.0
1.4
6.5
2.9
28.3
0.7
29.0
3.7
2014E
2.44
1.27
1.43
1.10
15 %
9.5
13.6
0.1
2.2
1.4
6.6
3.3
29.7
0.7
30.4
1.4
2015E
2.50
1.29
1.45
1.10
17 %
9.7
14.1
0.1
2.3
1.5
6.7
3.6
30.8
0.7
31.5
1.1
2016E FX driven
2.69 partly
1.23
1.38
1.10
12 %
10.6
yes
14.6
yes
0.1
no
2.4
no
1.6
no
6.1 partly
3.7
no
31.3
58 %
0.7
no
32.0
58 %
0.5
Biological considerations
In addition to feed price inflation, biological issues have been the main driver
behind the significant cost increase in aquaculture. Currently, the main concern
in Norway is sea lice, while PD remains an issue in many areas, despite
somewhat fewer incidents this year.
Cleaner-fish into
production in order to
meet the sea lice
problems
Norw ay, no of sites/reported incients
2009 2010 2011 2012 2013 2014 2015E
Com m ents
Infectious salmon anaemia (ISA)
9
7
1
2
10
10
20
Increasing again
Viral Haemorrhagic Septicaemia (VHS)
2
1
0
0
0
0
0
Solved
Pancreas disease (PD)
66
84
89
137
99
142
130
Somew hat dow n Y/Y
Infectious Pancreatic Necrosis (IPN)
223
198
154
119
56
48
30
To large extent solved
Heart and skeletal Muscle inflammation (HSMB)
139
131
162
142
134
181
150
Worrisome
Cardiomyopathy Syndrome (CMS)
76
53
74
89
100
107
Somew hat w orrisome
Bacterial infections/parasites
Furunculosis
0
0
0
0
1
0
0
Solved
Bacterial Kidney Disease (BKD)
3
0
3
2
1
0
0
To large extent solved
Winter w ounds; related to cold w inter w aters, not reported
Normally increasing w hen cold w inter w aters
Coldw ater vibriosis
9
9
8
7
4
3
1
Solved
Amoebic Gill Disease (AGD)
0
0
0
5
58
69
25
better preparedness
Sea lice (separate table)
No 1 risk next years
Source: The Norwegian Veterinary Institute, Fondsfinans Research estimates for 2015
5 October 2015
Page 15
Corkwing (Grønngylt)
Lump fish (Rognkjeks)
Wrasse (Berggylt)
The table below provides an overview of the development in PD incidents in the
Norwegian farming counties. YTD there are 23% fewer cases than last year,
reducing cost, and with lower temperatures so far this summer, the risk is lower.
Significantly less PD in
Norway YTD. Mid
Norway in particular
Page 16
PD sites in Norw ay
2007 2008 2009 2010 2011 2012 2013
2014 2015YTD* 14YTD
Finnmark
2
3
0
0
0
1
2
0
0
0
Troms
0
0
1
0
0
1
0
0
0
0
Nordland
0
2
0
0
0
0
0
2
0
1
Nord-Trøndelag
0
0
0
0
1
2
0
3
1
1
Sør-Trøndelag
0
0
1
0
3
24
32
34
7
24
Møre og Romsdal
23
18
7
7
9
21
21
20
14
10
Sogn og Fjordane
20
12
8
12
16
20
5
9
15
6
Hordaland
42
53
44
44
46
51
28
51
50
46
Rogaland
11
19
5
21
14
17
12
23
17
20
Agder
0
0
0
0
0
0
0
0
0
0
Total
98
107
66
84
89
137
100
142
104
108
-4 %
Y/Y
9 % -38 % 27 %
6 % 54 % -27 % 42 %
% of total sites affected
14 % 15 %
9 % 12 % 13 % 19 % 14 % 20 %
15 %
15 %
Source: The Norwegian Veterinary Institute, Fondsfinans Research *) Including August
5 October 2015
# sites PD14/cap%
63
0%
53
0%
144
1%
50
6%
60
57 %
70
29 %
56
16 %
151
34 %
56
41 %
9
0%
712
20 %
AGD sites YTD – The AGD situation is better this year, more use of fresh
water treatments
AGD is caused by the amoeba Paramoeba perurans, and created significant
challenges for farmers in the UK from 2012 before being detected in southern
Norway in late 2012. While the impact in terms of mortality seems under
relatively good control, farmers in affected regions experience increased cost
related to both treatment and prevention/readiness measures.
The table below provides an overview of reported AGD cases in Norway. It is not
mandatory to report AGD-outbreaks to the authorities, and the list is
consequently not complete. Nonetheless, the disease has spread significantly
during the last couple of years, becoming prevalent not only in Hordaland, but
Sogn og Fjordane and Møre og Romsdal, further up the coastline, which is
worrisome but not surprising.
AGD sites in Norw ay 2009 2010 2011 2012 2013 2014 2015YTD
Troms
Troms
Nordland
Nord-Trøndelag
Sør-Trøndelag
6
Møre og Romsdal
5
29
Sogn og Fjordane
12
11
Hordaland
2
19
21
Rogaland
3
20
2
Agder
Total
0
0
0
5
56
69
12
Source: The Norwegian Veterinary Institute, Fondsfinans Research
# sites 13 % cap.14% cap.
63
0%
0%
53
0%
0%
144
0%
0%
50
0%
0%
60
0%
10 %
70
7%
41 %
56
21 %
20 %
151
13 %
14 %
56
36 %
4%
9
0%
0%
712
8%
10 %
1.8 %
Raw material prices – Fish meal prices
The following charts and graphs show the development in prices of key raw
material inputs for fish feed. As expected, USD fish meal prices have come down
significantly from peak levels during the winter as the first Peruvian Anchoveta
fishing season was successful. However, meal prices have come somewhat up
from the trough levels when heading for increased demand for fish feed in high
feeding season in Europe in August and September.
We assume that the second fishing season in Peru will be cancelled and assume
that fish meal and oil prices will climb further. The Peruvian anchoveta quotas are
every year being set in October. This year we forecast the quota to be set equal
to zero.
5 October 2015
Page 17
Aquacu
R
5
Stronger US
SDNOK ratio
o
meaning tha
at the fish
feed price ssoon should
be adjusted
d upwards
again
Lack of the Humboldt
stream this year
2 500
S
Spot prime gr
rade fish meaal price ,67% protein, FOB
B Peru 2 300
2 100
1 900
1 700
USD/t
Fish meal p
prices sliding
in 1H as exp
pected –
Prices pickin
ing up again
measured in
n USD.
1 500
1 300
1 100
900
700
2012
Assuming ssecond
fishing seasson in Peru
cancelled:
Hence, fish meal prices
expected fu
urther up
measured in
n USD and
NOK
Pelagic quo
otas in the
North Atlanttic
Page 18
Fish meal, USD//t
2005
2006
2007
609
1Q price
715
1 183
632
2Q price
817
1 137
676
1 111
3Q price
919
723
1 237
4Q price
911
17
1Q YoY
7%
65 %
2Q YoY
29
9%
39 %
3Q YoY
64
4%
-17 %
4Q YoY
71
1%
-26 %
Full year averag
972
1 036
ge
660
47
Y/Y
7%
7%
USDNOK
6.46
6..41
5.86
NOK price per ton
t
4 265
6 229
2
6 073
46
Y/Y increase
6%
-2 %
Source: Bloombe
erg YTD, Fondsfinans Research
R
estimates
Pelagic quota
as in North Atlantic
Mackerel
el
Horse mackere
Winter herring (NVG)
(
North Sea herring
Capelin, Barentts Sea
Capelin, Iceland
d/Jan Mayen
Blue whitting (kkolmule)
Sand Eel (tobiss)
Pout
Boarfish (Ireland)
Total pelagic quotas, 1000 mt
Total quotas Y//Y
Pelagic quota
as for feed use
Feed quotas, Y/Y
Y
2008
456
180
1 025
60
0
209
1 250
432
115
0
3 727
2 355
2013
20
008
9
978
1 075
0
1 051
0
8
895
-17 %
-5 %
14 %
-2 %
1 000
0
-4 %
5.6
65
5 64
48
-7 %
2009
569
177
1 643
50
390
20
606
340
143
84
4 022
8%
2 053
-13 %
5 October 2015
20
014
2009
918
964
1 150
1 448
-6 %
-10 %
9%
62 %
1 121
12 %
6.29
7 054
25 %
2010
410
180
1 483
60
360
146
540
374
161
139
3 853
-4 %
2 161
5%
2010
1 70
03
1 80
05
1 511
1 43
39
86 %
87 %
31 %
-1 %
1 614
44 %
6.04
4
9 747
7
38 %
2015 YTD
2011
1 704
1 384
1 390
1 258
0%
-23 %
-8 %
-13 %
1 433
-11 %
5.65
8 094
-17 %
2011
391
181
988
80
380
435
410
8
0
33
2 906
-25 %
1 608
-26 %
2012
2
1 241
1
1 481
1
1 642
2
1 795
5
-27 %
7%
18 %
43 %
1 541
1
8%
5.83
8 986
11 %
2012
586
211
833
115
320
700
391
40
0
82
3 278
13 %
1 868
16 %
2013
2 070
1 909
1 500
1 448
67 %
29 %
-9 %
-19 %
1 729
12 %
5.88
10 169
13 %
2013
643
126
619
478
200
510
643
292
393
82
3 986
22 %
2 345
25 %
2014
1 513
1 695
1 848
2 216
-27 %
-11 %
23 %
53 %
1 820
5%
6.29
11 447
13 %
2014
1 279
126
450
470
65
160
1 279
250
219
127
4 425
11 %
2 291
-2 %
2015E
2 247
1 803
1 610
1 842
49 %
6%
-13 %
-17 %
1 874
3%
7.90
14 802
29 %
2016E
1 774
1 571
1 946
2 000
-21 %
-13 %
21 %
9%
1 824
-3 %
8.40
15 320
4%
2015
840
150
283
430
6
580
840
437
326
100
3 992
-10 %
2 466
8%
2016E
776
120
317
518
0
600
776
500
300
50
3 957
-1 %
2 385
-3 %
ans Research
h
Fondsfina
600
No shortage of soy
meal/vegetable proteins
– Expecting moderate
prices also ahead
Soy meal prices, 44% protein, US, Chicago
550
500
450
USD/t
400
350
300
250
200
2012
Soy meal; USD/t
1Q price
2Q price
3Q price
4Q price
1Q YoY
2Q YoY
3Q YoY
4Q YoY
Full year average
Y/Y
USDNOK
NOK price per ton
Y/Y increase
2005
170
203
197
178
187
6.46
1 208
2006
175
182
176
165
2%
-10 %
-11 %
-8 %
174
-7 %
6.41
1 117
-8 %
2013
2007
213
211
239
292
22 %
16 %
36 %
77 %
239
37 %
5.86
1 401
25 %
2008
347
356
368
265
63 %
69 %
54 %
-9 %
334
40 %
5.65
1 887
35 %
2014
2009
296
363
343
305
-15 %
2%
-7 %
15 %
327
-2 %
6.29
2 055
9%
2010
279
281
306
337
-6 %
-23 %
-11 %
10 %
301
-8 %
6.04
1 816
-12 %
2011
367
354
353
301
32 %
26 %
16 %
-11 %
344
14 %
5.65
1 942
7%
2015
2012
336
411
513
455
-9 %
16 %
45 %
51 %
429
25 %
5.83
2 503
29 %
2013
419
433
450
430
25 %
5%
-12 %
-5 %
433
1%
5.88
2 548
2%
2014
447
483
397
375
7%
12 %
-12 %
-13 %
426
-2 %
6.29
2 677
5%
2015E
338
316
352
345
-24 %
-35 %
-11 %
-8 %
338
-21 %
7.90
2 667
0%
2016E
311
353
347
325
-8 %
12 %
-1 %
-6 %
334
-1 %
8.40
2 805
5%
Fish meal / soy meal ratio – expecting the ratio above long term average ahead
Fish/soy meal ratio
2005
2006
2007
1Q
3.6
4.1
5.6
2Q
3.1
4.5
5.4
3Q
3.5
6.3
3.9
4Q
4.1
7.5
3.1
Full year ratio
3.6
5.6
4.5
Long term average
Source: Bloomberg, Fondsfinans Research
El Niño present in Peru
Mature El Niño present
in the tropical Pacific
Peru: Second 2015
fishing season and first
2016 season at risk
2008
2.8
3.0
2.9
3.4
3.0
2009
3.1
2.7
3.4
4.7
3.5
2010
6.1
6.4
4.9
4.3
5.4
2011
4.6
3.9
3.9
4.2
4.2
2012
3.7
3.6
3.2
4.0
3.6
2013
4.9
4.5
3.3
3.4
4.0
2014
3.4
3.5
4.7
6.0
4.4
4.2
2015E
6.7
5.7
4.6
5.3
5.6
4.3
2016E
5.7
4.8
5.1
5.2
5.2
4.4
While spot fish meal prices have come down to more moderate levels in 1H15,
reflecting improved availability as the first Anchoveta fishing season has been
successful, a new El Niño clearly represents a risk factor and quotas could be set
to zero.
According to a World Meteorological Organization (WMO) update in September,
“a mature and strong El Niño is now present in the tropical Pacific Ocean. The
majority of international climate outlook models suggest that the 2015-16 El Niño
is likely to strengthen further before the end of the year. Models and expert
opinion suggest that surface water temperatures in the east-central tropical
Pacific Ocean are likely to exceed 2° Celsius above average, potentially placing
this El Niño event among the four strongest events since 1950”.
Historically, a mature El Niño event is likely to have maximum strength between
October and January of the following year, and often to persist through much of
the first quarter of that year before decaying. Accordingly, in Peru both the
5 October 2015
Page 19
second fishing season of 2015 and the first 2016 season are at risk.
The WMO sums it up a follows:
Major El Niño scenario
Higher cost...
...but lower supply lifting
prices

As of August 2015, both the ocean and atmosphere over the tropical
Pacific exhibit behaviour indicative of a strong El Niño

A majority of the models surveyed and expert opinion suggest the 201516 El Niño will strengthen further during the second half of 2015

The peak strength of this El Niño, expected sometime during October
2015 to January 2016, could potentially place it among the four strongest
El Niño events since 1950

Impacts from this El Niño are already evident in some regions and will be
more apparent for at least the next 4-8 months
In a scenario with no or highly limited fisheries during the El Niño incident, global
fish meal supply volumes will fall by at least 50%, and spot fish meal prices could
climb significantly.
The feed companies will turn to more cash sales. Chilean companies with
stretched balance sheets would have to reduce stocking for 2H15 and production
significantly enough to materially impact the global market balance.
If the El Niño will last for more than one fishing season, the supply could be
hampered and salmon prices could clearly lead to much higher than our long
term equilibrium price of around EUR 5/kg. This could again lead to increased
volatility.The 1998 incident led to very high salmon prices in the following period
of 1999-2000. The table below provides our quota forecast (historical quotas also
in table).
Peru/Anchovita quota (1 000 mt)
1H11
3 675
2H11
2 500
1H12
2 750
2H12
810
1H13
2 050
2H13
2 300
1H14
2 530
2H14
0
1H15
2 580
2H15E
0
1H16E
2 200
2H16E
3 000
Source: Fondsfinans estimates
Page 20
5 October 2015
Y/Y vol.
Comments
-25 %
-68 % El Ninõ season
-25 %
184 %
23 %
n.m. El Nino season
Quota taken
n.m. Assuming El Niño
-15 % Post El Niño situation
Historical quotas in Peru – Long term average around 6 mill ton per year
12
Fishing quotas in Peru, Anchoveta, mill t wfe 10
8
6
4
2
0
Developments of marine ingredients in the fish feed – falling from 65% in 1990 to
only around 17% in 2014. If the El Niño will last for years, this ratio will be very
hard to maintain. Lack of raw material in such scenario could lead to reduced
supply of salmon vs. our base case calculation in this note.
SRS in Chile still active – the SRS virus vaccine doesn’t work
SRS – Region XI in
particular
All salmonid species
The biological situation in Chile remains severely affected by continued
challenges with SRS (rickettsia), in particular in region XI. SRS is caused by the
bacterium Piscirickettsia salmonis, and issues were first reported in Chile in
1989. During the disease is estimated to have caused mortality 1.5 million Coho,
many at close to harvesting weight. A year later, the disease was also found to
occur in Atlantic salmon and up to 90% mortality was seen at some farms.
Outbreaks of SRS in other countries have not reached the levels seen in Chile.
SRS in Chile typically occurs in marine waters during the on-growing process,
but it has also been observed in the freshwater phase. While the disease was
originally predominant in Coho, it is now recognized to cause serious losses in all
salmonid species.
5 October 2015
Page 21
High financial losses
related to SRS mortality
and forced harvesting
SRS typically causes very high financial losses to the farmers affected, as
cumulative mortality averages at least 20% during the sea water production
phase. The affected fish are lethargic, dark in colour, anorexic, anaemic with
lesions within the liver, show respiratory problems, and swim near the surface.
Internally, the kidney is swollen and the spleen enlarged. However, in acute
cases, mortality may occur before external signs are visible.
Antibiotics treatment –
No effective vaccine yet
SRS is typically treated with a variety of antibiotics, though the use of medicated
feed to control the disease has been unsuccessful, possibly because antibiotic
levels may not reach sufficient concentrations within the host cells. No effective
vaccine against SRS currently exists, though research is ongoing motivated by
potential for significant cost reductions from reduced mortality. Antibiotics in Chile
remains at unsustainably high levels, and according to data from the Global
Salmon Initiative (GSI, 2015 Sustainability Report), the use is especially high for
companies present in region XI, where the usage was up Y/Y in 2014.
Management of SRS
and precautionary
measures
SRS outbreaks often occur after smolt transfer to seawater, but good
management practices help. This includes the early removal of dead and
diseased fish, sanitary disposal of blood from harvested fish, reducing fish
density and extended fallowing of sea water sites. Other measures include
routine screening of brood-stock and rejection of eggs from positive fish, as the
disease is transferred vertically as well as horizontally. Improved coordination
between farmers would most likely also be helpful.
And sea lice in Chile – MHG restructuring and taking down smolt stocking
following the volcano eruption
Sea lice remains
challenging, with levels
up Y/Y
MHG restructuring in
Chile, reducing smolt
stocking from 17m to
11m
In addition to SRS, sea lice remains a significant challenge in Chile. At 2Q15
MHG reported that the sea lice load at the end of the quarter was higher than at
the corresponding time in 2014. Compared to the second quarter of 2014, the
biological cost has increased by 5%, while improved feed conversion has
contributed to reducing feeding cost measured in USD.
At 2Q, MHG reported that, as a response to the weak prices in Marine Harvest
Chile's main markets and challenging biology, the company will reduce the smolt
stocking in 2015 from around 17m to around 11m smolt. Accordingly, Marine
Harvest Chile will also reduce the manning by an estimated 200 full time
equivalents.
POTENTIAL CONSOLIDATION IN CHILE NEXT YEARS
If the El Niño will last for
years, we might see
bankruptcies in Chile
Feed players will
probably turn to cash
sales and try to reduce
feed credit lines
In 2013 ownership limitations in the Norwegian industry were softened
considerably, raising the ceiling was raised from 25% to 40% ownership of
Norwegian licenses.
The regional ownership limitation rules were also discontinued by the
Government. Recently, also local obligations of processing HOG salmon were
discontinued by the conservatives. Such regulatory improvements should also
lead to lowering cost and could potentially stimulate consolidation. However, with
positive outlooks and strong balance sheets, there are few sellers in the
Norwegian industry, and we see significant consolidation as less likely at the
moment.
In Chile, however, the farmers are in a significantly worse position, and we
believe consolidation is a prerequisite for solving the structural problems for the
industry. In the shorter term, with the El Niño situation and prospects of higher
feed cost could be a trigger.
On 2 October the Japanese conglomerate Mitsui acquired a 23.76 percent stake
in the Multiexport company Salmex for USD 100.7m through the issue of new
shares according to Bloomberg. Though there is limited information on i.a. the
Page 22
5 October 2015
debt structure in the Multiexport companies, at market Multiexport now trades
around EV/kg of NOK 61 and EV/kg capacity of NOK 38.
The tables below give an overview of top 5 players in Norway and Chile. Top 5 in
Norway stands for around 60% (54%) of the 2014 (2012) production vs. 49%
(38%) in Chile.
2012
No
Com pany
Norw ay*
1
Marine Harvest
256
2
Cermaq
51
3
Lerøy
126
4
SalMar
103
5
AquaChile
6
Grieg Seafood
40
7
Cooke Aquaculture
8
Bakkafrost
9
Multiexport
10
Los Fiordos
11
Nordlaks
36
12
NovaSea
34
13
Camanchaca
14
Blumar (incl Itata, El Golfo)
15
Scottish Seafarms
16
Alsaker Fjordbruk
25
17
Bremnes Fryseri
24
18
SSC
19
Morpol
20
NRS
21
21
Australis
22
Invertec
23
Villa Organic
14
Sum
730
Industry volume
1 065
Top 5 per region
575
Top 5, %
54 %
*) In total, 78 companies in Norw ay
p.f. 2014
Chile
40
57
UKCanada Faroes Others
40
40
7
9
19
74
17
13
14
42
44
42
40
28
28
27
24
23
17
16
354
660
252
38 %
131
143
131
92 %
115
119
51
63
9
74
Sum
392
127
126
103
74
70
55
44
42
40
36
34
28
28
27
25
24
24
23
21
17
16
14
1 389
2 124
821
39 %
No Com pany
Norw ay Chile*
UKCanada Faroes Others Sum
1 Marine Harvest
258
67
49
27
12
6
419
2 Mitsubishi **
51
100
19
170
3 Lerøy
158
158
4 SalMar
135
135
5 AquaChile
95
95
6 Cooke Aquaculture
18
17
34
69
7 Grieg Seafood
39
19
6
64
8 Multiexport
61
61
9 Los Fiordos
50
50
10 Bakkafrost
44
44
11 Camanchaca
39
39
12 Nordlaks
37
37
13 NovaSea
39
39
14 SSC
30
30
15 Alsaker Fjordbruk
26
26
16 Scottish Seafarms
28
28
17 Bremnes Fryseri
25
25
18 Australis
25
25
19 Blumar (incl P.Star, Trusal)
35
35
20 NRS
22
22
21 Invertec
16
16
22 Northern Harvest
15
15
23 Tassal aquaculture
19
19
Sum
790
506
143
101
56
25 1 621
Industry volume
1 071
757
149
100
73
77 2 227
Top 5 per region
641
373
143
882
Top 5, %
60 % 49 % 96 %
40%*
** Mitsubishi (Cermaq, CMC, Humboldt, Southern Cross, Mirasol)
*) Coho, trout and Atlantics together
Risk assessment – Biological risks and fish health considerations
The sensitivity of key assumptions is very high, with salmon prices being the key
factor. Salmon prices around the world will differ from market to market. In
Europe, fish sales are primarily settled in EUR, while US sales are settled in
USD. The larger companies in the sector have EUR and USD debt in order to
hedge FX risks. The smaller companies in the sector are financed by NOK debt.
In general, fish disease outbreaks represent considerable costs to producers that
are affected. Some fish diseases, like Pancreas Disease (PD) and IPN, and
parasites like sea lice (incl. AGD), represent running costs related to vaccination
and other preventive measures, in addition to the risk of forced harvesting,
reduced quality and price achievement in case of actual outbreaks. Historically,
fallowing waters after PD incidents has proven efficient in terms of reducing the
risk of new outbreaks on the following generations in a local area.
Company specific fish diseases could always hit long term underlying values in
fish farming. In the Northern hemisphere, 2Q and 3Q is normally high season for
potential fish diseases (whereas the risk profile through the year is more or less
reverse in Chile). The risk increases in summer and in 3Q when the sea water
temperatures and the density in the cages are at peak. In opposite, 4Q and 1Q
are normally low season for fish diseases at the Northern Hemisphere.
New aquaculture farming rules in Norway should over time stimulate to more
sustainable production and help conditions back to normal. Longer term, we
forecast less use of chemicals and better feed factor. If such move will
materialize, production cost will drop.
The current Aquaculture Law in Chile came into force in April 2010 and was
revised in May 2013. CEQ points to the root causes being inadequate
5 October 2015
Page 23
enforcement of regulations and a lack of coordination between farming
companies. I.a. to address these underlying issues, CEQ and Marine Harvest, in
particular, have taken the initiative in establishing the Global Salmon Initiative
(GSI), a major industry-led sustainability initiative comprising 15 companies
representing 70% of the global salmon farming industry. In Chile the GSI had
engaged a sea lice coordinator (Mr. Oscar Garate) with relatively broad powers
in enforcing delousing and forced harvesting within the separate macro
cultivation zones, and according to CEQ coordinated treatment against sea lice
has shown promising results in some of the macro zones (in total 53
neighbourhoods inside the 9 macro zones) it has been introduced so far. This
fish health system should, over time, contribute to more sustainable long term
farming conditions. Reduced standing biomass in Region XI should help longer
term conditions. Fallowing trout sites in Region X should also help longer term
conditions as the trout is sensitive to sea lice and SRS. Some farmers will in
addition probably switch to Coho production (Region X), a species that is more
robust against sea lice.
Delousing of standing biomass in Chile with Salmosan has given significant
positive effects last year. In the long run, Salmosan is, however, not a
sustainable solution to the sea lice issues. Finally, less 2015 standing biomass
more regular fallowing of major sea waters should help long term sea water
conditions. However, we forecast negative supply in Chile for 3-5 year period.
Page 24
5 October 2015
Marine Harvest ASA
BUY
3Q15 Preview 6 October 2015
Results date: 28 October 2015
Gaining from integrated business model
Share data (NOK m)
Sector
Reuters/ Bloomberg
Risk rating
Market cap
Net interest bearing debt
Enterprise value
Aquaculture
MHG
Medium
450.1
48 159
8 492
56 651
Free float %
77 %
Average volume (thous)
2 303
High/ low 52w
Weight OSEBX %
105.8 / 77.3
3.3187
Rel. Perf % (3/6/12 mts)
24/ 14/ 29
Abs. Perf. % (3/6/12 mts)
12/ 07/ 21
MHG debt target: EUR 950m /EUR1.8/kg fish
NIBD/kg (target), EUR
1.8
Global volumes (t)
435
Upstream NIBD target, EURm
783
EURNOK
NIBD/kg fish, impl target
Upstream NIBD target, NOKm
Share Price: NOK 107
Target: NOK 124 (118)
9.5
17.1
7 439
MHG debt target, EURm
950
Impl. Dow nst. NIBD target, EURm
167
Dow nst. NIBD debt, NOKm
1 587
MHG debt target, NOKm
9 025
3QE NIBD
8 492
NIBD target-3QNIBD (div headroom)
533
Out. shares (m)
450
3Q div (headroom)
1.18
3Q div cons (BB)
1.31
3Q Div actual (NOK). To be announced at 3Q
At 2Q15 MHG reiterated prospects of a continued tight market for salmon
driven by limited global supply growth. Demand in Europe is developing nicely.
MHG points to category development in close cooperation with long-term
clients as a key factor. We agree, and expect the positive development for
consumer packed products to continue and margins to pick up from still
moderate 2Q levels. More attractive contracts and significantly increased
capacity utilization for the UK Rosyth plant in 2H15 should contribute.
Salmon prices for 3Q are up both in NOK and EUR, which is seasonally
atypical. Reference prices in the US (Chile salmon) are, however, slightly
down measured in USD. 3Q cost (measured in NOK) is also likely to climb
further as EUR and USD have strengthened significantly. Fish feed costs will
increase again. We estimate 3Q EBIT of NOK 751m, slightly up from NOK
719m at 2Q. Normally EBIT is lower in 3Q than in 2Q, but probably not this
year due to higher prices. In Chile, 3Q EBIT is estimated to NOK –114m due to
very challenges conditions continuing. MHG debt, measured in NOK, will also
be inflated in the quarter as the company is partially financed in USD, EUR
and GBP. We calculate 3Q NIBD close to NOK 8.5b. Given the current gearing
policy, the headroom for quarterly dividend is stipulated to be around NOK 1.2
per share. We expect MHG to pay a quarterly DPS of NOK 1.3 and increase
the gearing policy somewhat due to strong market outlook.
With strong market outlook and increasing use of long-term contracts, in
combination with an integrated business model, we maintain our implied P/E
target of 12x (2016E). We estimate 2015 and 2016 EPS adj. of NOK 6.97
(7.89) and 9.95 (9.90). We expect DPS to pick up from NOK 5.1 (5.5) in 2015
to NOK 7.5 (7.6) in 2016, providing attractive yield. We calculate SOTP values
of NOK 124 (118) and reiterate our BUY recommendation.
Key figures
2012
2013
2014
2015E
2016E
2Q14
3Q14
4Q14
Total revenues
15 527
19 247
25 548
27 930
31 972
6 565
6 234
6 881
6 579
6 589
1 278
3 990
5 200
4 553
7 053
1 444
1 160
1 280
1 041
1 055
1 364
OpEBIT (ex IFRS)
644
3 209
4 252
3 324
5 833
1 219
912
1 031
719
751
1 059
EBIT farming
765
3 340
4 172
3 143
5 418
1 249
943
852
710
639
936
81
161
158
0
20
61
27
50
65
71
EBITDA
OpEBIT Feed
Bent Rølland
Fondsfinans AS
TEL: +47 23 11 30 27
[email protected]
Philip M. Scrase
Fondsfinans AS
TEL: +47 23 11 30 23
[email protected]
2Q15 3Q15E 4Q15E
8 343
EBIT Consumer products
176
-150
122
187
310
47
48
49
48
70
IFRS biomass adj.
350
1 825
-576
0
0
-825
71
387
-667
0
0
PTP
789
3 500
1 523
1 967
5 813
-387
511
393
19
441
1 046
0.112
5.959
1.872
3.367
9.946
-0.828
0.537
0.314
0.055
0.754
1.790
0.21
3.56
7.97
6.967
9.946
2.239
0.790
2.540
2.161
0.754
1.790
40 222
28 281
67 504
67 000
50 000
16 425
16 736
16 602
13 240
19 000
18 693
Norw egian volumes
255 306 222 494 258 021 256 939 269 000
68 674
64 299
69 941
64 036
56 000
71 700
Upstream vol.
392 310 343 741 418 873 429 939 438 000 114 176 107 332 105 121 104 158 103 000 123 305
Reported EPS
EPS adj.
Chilean volumes
Volumes Y/Y
14 %
-12 %
22 %
3%
2%
44 %
33 %
2%
-9 %
-4 %
DPS payments
0.10
2.09
8.34
5.10
7.50
5.00
1.00
1.10
1.30
1.30
1.30
OpCF
1 553
1 982
3 944
2 654
5 716
1 324
875
534
729
344
1 044
NIBD
5 399
7 797
9 268
8 653
8 603
6 990
7 232
9 268
7 685
8 492
8 653
1.9
2.0
1.8
8.0
EV/ Sales
EV/ EBITDA
9.2
12.5
EV/EBIT
11.3
17.1
9.7
P/E adj
11.8
15.4
10.8
P/B
2.6
2.7
2.3
NIBD/kg
23
21
20
17 %
Source: Company/Fondsfinans Research
This report was prepared by an analyst engaged by Fondsfinans AS, the Norwegian affiliate of Fondsfinans Inc., who is not registered as a research analyst with FINRA or
subject to FINRA rules governing research. This report is not a product of Fondsfinans Inc. See page 31 of this report for Important Disclosure Information.
Marine Harve
est ASA - 3Q1
15 Preview 6 October
O
2015
Marine H
Harvest - Furthe
er comme
ents, tab
bles and estimate
es
MHG Harbo
our:
Successful European
developmen
nt
Due to co
old summer w
waters and delayed
d
feed
ding profile, M
MHG guided down 2015
volumes at 2Q from 440 ’t to 43
30 ’t. Norway: 257’t (2666’t), UK: 52’’t (56’t) and
Canada: 42’t (41’t). W
Water conditions in Cana
ada have, in oopposite to Norway/UK,
N
been warrmer than exxpected. Guid
ded volumes
s in Canada w
went up by 1’t.
Marine Harve
est ASA
2012
2013
2014
2015E**
2016E
2015
5
Vol
Vol
Vol
FF Vol
FF Vol
Curr Gu
uid
HOG incl Acuin
nova
Farming Norw ay
a
255 306 222 494
4 258 021 256 939 269 000
Farming Faroes
MOWI sash
himi brand in
Asia:
14/13 Y/Y 15/1
14 Y/Y
Grow th
Gro
ow th
16/15 Y/Y
Grow th
257 000
0
16 %
0%
5%
104 %
-83 %
300 %
6 893
5 665
11 532
2 000
8 000
2 000
0
Farming UK
40 261
48 390
48 858
52 000
56 500
52 000
0
1%
6%
9%
da
Farming Canad
40 221
33 059
26 698
42 000
41 500
42 000
0
-19 %
57 %
-1 %
Farming Chile*
40 222
28 281
67 504
67 000
50 000
67 000
0
139 %
-1 %
-25 %
d
Farming Ireland
9 407
5 852
6 260
10 000
13 000
10 000
0
7%
60 %
30 %
Total farm ing
g
392 310 343 741 418 873 429 939 438 000
430 000
0
22 %
3%
2%
Europe farming
g
311 867 282 401 324 671 320 939 346 500
321 000
0
15 %
-1 %
8%
109 000
0
54 %
16 %
-16 %
Americas farm
ming
80 443
61 340
94 202 109 000
91 500
*) 2015 Chile guidance
g
incl AcuiNo
ova (15 000 t HOG - Region XI). Chile IF
FRS continued again
n due to termination of
o the AquaChile de
Rebel fish b
brand in the
US – micro oven
product
Based on
n the update
ed volume gu
uidance, MHG
G volumes fo
for 2015 will increase by
around 3%.
3 We expe
ect MHG to grow
g
by arou
und 2% (3%
%) in 2016, ju
ust ahead of
the globa
al industry. T
The company
y has secure
ed extra capaacity in Irelan
nd, and has
most likely also applie
ed for additio
onal MAB in Norway in laate August th
his year.
Quarterly
y harvesting
g profile:
Marine Harves
st ASA
V ol
3Q 2015
4Q 2015
2Q Y/Y
3 Y/Y
3Q
4Q Y/Y
guid
g
guid
Vol
Guid
Impl guid
Vol
Vol
Vol
Vol
Farming Norw ay
y
68 674
64 299
6 941
69
65 203
64
4 036
56 000
7 700
71
-7 %
-13 %
3%
Farming Faroes
3 048
3 086
3 314
0
0
0
2 000
-100 %
-100 %
-40 %
18 274
13 740
6 376
7 112
12
2 351
16 000
1 537
16
-32 %
16 %
159 %
6 459
7 052
6 819
10 478
11 583
9 000
1 939
10
79 %
28 %
60 %
16 425
16 736
1 602
16
16 067
13
3 240
19 000
1 693
18
-19 %
14 %
13 %
1 296
2 419
2 069
616
2 948
3 000
3 436
127 %
24 %
66 %
99 476 104
4 158
103 000
12
23 305
-9 %
-4 %
17 %
Farming UK
Farming Canada
a
Farming Chile
Farming Ireland
Admiral – P
Primarily for
the US
2 2014 3Q 2014 4Q
2Q
Q 2014 1Q 2015 2Q 2015
2
HOG incl Acuin
nova
Total farm ing
114 176 107 332 10
05 121
Europe farming
91 292
83 544
8 700
81
72 931
79
9 335
75 000
9 673
93
-13 %
-10 %
15 %
Americas farmin
ng
22 884
23 788
2 421
23
26 545
24
4 823
28 000
2 632
29
8%
18 %
27 %
Source: Fondsfifinans Research, *Incl MHG Chile/Aquinova
At 2Q the MHG boa
ard stated: “W
With an exp
pected limiteed supply grrowth in the
periods to
t come, the
e Board exp
pects the ma
arket balancce to remain
n tight”. We
agree. Att 3Q Norweg
gian harvesting should go
o down by 1 3% Y/Y. Glo
obally, MHG
volumes should be do
own 4% Y/Y. For 4Q MHG will start too harvest mo
ore volumes
again Y/Y
Y.
The OLAV b
brand for
Benelux
out productt developme
ents – MHG Consumer P
Product seg
gment:
More abo
2Q comm
ments from M
MHG: “Categ
gory development in closse cooperatio
on with core
and long
g term oriente
ted clients is
s in line with Marine Harrvest’s strate
egy and will
stimulate
e consumer d
demand goin
ng forward. The Board iis pleased by
b the good
underlyin
ng demand in
n the Europe
ean and Asian markets, whilst developments in
the Amerrican marketts remain a concern. Ma
arine Harvesst’s market organization
o
will put effort into d
developing current
c
and new markeets for Chile
ean salmon
through, among othe
er things, inttroducing mo
ore value addded concep
pts and new
products in the Ameri
rican markets
s. Marine Harvest is curreently working
g with major
retailers to
t develop an
nd strengthe
en this work.””
At 2Q pre
esentation M
MHG indicated that the ne
ew WalMart ccontract in th
he US was
firm, and this should b
be an attracttive platform for introduci ng new, and
d more
e consumer p
products in th
his market. This
T
new largge contract should
attractive
include frresh fish deli veries. Furth
her, the comp
pany confirm
med that a ne
ew long
term conttract with one
e of the lead
ding UK retailers were aw
warded for VA
AP/MAP
and smok
ked productss. More use of
o long term contracts shhould imply higher
trading multiples.
m
Page 26
5 October 2015
Fondsfina
ans Research
h
Marine Harvest ASA - 3Q15 Preview 6 October 2015
At 1Q the MHG Board stated overall growth in demand due to new product
development, continued marketing efforts and supportive consumer trends. At
2Q the company pointed out that the utilization at the new Rosyth plant in
Edinburgh will gradually increase. The Rosyth plant is now on-stream ahead of
the high season with good operational performance. We maintain our view that
the new consumer packed products will gradually stimulate demand in both
Europe and somewhat further down the road also in the US market. In the US,
MHG will continue to develop the Rebel Fish, Ducktrap and Admiral brands.
3Q MHG EBIT distribution per segment: We estimate 3Q EBIT of NOK 751m
which is down vs. our latest note primarily because of higher cost levels in NOK.
MHG
2Q14
3Q14
4Q14
1Q15*
2Q15 3Q15new
Total revenues
6 565
6 234
6 881
6 418
6 579
6 589
6 565
EBITDA
1 444
1 160
1 280
1 093
1 041
1 055
1 214
Op. EBIT*
1 219
912
1 031
795
719
751
910
Biomass adj (IFRS)
-825
71
387
-554
-667
0
0
Net financials
-596
-521
-1 052
208
88
-67
-67
PTP
-387
511
393
461
19
441
900
EPS adj.
2.24
0.79
2.54
2.26
2.16
0.75
DPS (paid in the quarter)
3Q15old
1.0
1.10
1.20
1.30
1.30
1.30
Op. cash flow
1 324
875
534
537
729
344
1.70
828
MHG NIBD (incl Chile)
6 990
7 232
9 268
7 518
7 685
8 492
8 009
2Q15 3Q15new
3Q15old
*)2Q Chile restructuring cost: USD 11m (NOK 90m) taken. Insurance coverage: USD 5m
Harvesting volum es
Norw ay
Faroe Islands
Scotland
Canada
Chile
Ireland
Total farm ing (t)
Farming Y/Y
Consum er Products (t)
2Q14
3Q14
4Q14
1Q15
68 674
64 299
69 941
65 203
64 036
56 000
3 048
3 086
3 314
0
0
0
0
18 274
13 740
6 376
7 112
12 351
16 000
16 000
56 000
6 459
7 052
6 819
10 478
11 583
9 000
9 000
16 425
16 736
16 602
16 067
13 240
19 000
19 000
1 296
2 419
2 069
616
2 948
3 000
3 000
114 176
107 332
105 121
99 476
104 158
103 000
103 000
44 %
33 %
2%
8%
-9 %
-4 %
-4 %
25 866
25 155
31 945
25 814
25 541
27 916
27 916
29 %
32 %
32 %
2Q15 3Q15new
3Q15old
Internal sales, % (not reported)
27 %
28 %
36 %
31 %
MHG EBIT distribution
2Q14
3Q14
4Q14
1Q15*
816
624
796
843
627
575
36
42
43
-1
-1
0
0
Scotland
222
137
-27
19
67
100
135
Canada
71
33
25
51
25
47
58
Chile
91
101
6
-53
-61
-114
-38
Norw ay
Faroe Islands
Ireland
MHG upstream ("all inclusive")
MHG Consumer Products
13
6
9
-1
53
31
34
1 249
943
852
858
710
639
830
20
48
117
-2
48
70
56
20
61
19
27
50
40
4
-52
1
4
7
7
4
-54
-47
0
-84
-73
-15
-20
1 219
912
1 031
795
719
751
910
39.3
34.4
38.6
40.7
37.91
40.40
39.90
MHG Feed (in Op EBIT)
Others (w hite halibut/fish trading)
HQ/overhead/elim.
MHG Op. EBIT
Salmon NOS/NASDAQ ref. price
641
Av. MHG-price
38.9
36.8
39.0
40.7
39.05
40.26
39.9
Simple cost/kg (Norw ay FOB Oslo)
27.0
27.0
27.6
27.8
29.3
30.0
28.5
US reference prices for 3Q in the US is down vs. 2Q. In light of the very
challenging cultivation situation in Chile, we forecast significant EBIT loss for 3Q
around NOK 100m.
5 October 2015
Page 27
The table below sums up our annualised Marine Harvest estimates.
MHG growing by
around 3% in 2015E
and 2% in 2016E.
The industry should
grow by around 3.5%
globally for 2015, and
1% in 2016 globally
MHG - Volumes
2008
2009
2010
2011
2012
2013
2014
2015E
2016E
Norway
Faroe Islands
Scotland
171 086
7 421
32 341
201 676
6 349
37 698
202 456
5 417
33 136
217 510
5 928
50 174
255 306
6 893
40 261
222 494
5 665
48 390
258 021
11 532
48 858
256 939
2 000
52 000
269 000
8 000
56 500
Canada
Chile (sales)
Ireland
Total farming (HOG t)
Farming growth YoY
Consumer Products (t)
Consumer Products, Y/Y
36 050
75 395
4 329
326 622
54 957
36 537
36 204
8 636
327 100
0%
58 159
33 547
10 728
10 557
295 841
-10 %
135 661
33 917
26 824
9 332
343 685
16 %
121 823
-10 %
40 221
40 222
9 407
392 310
14 %
128 575
6%
33 059
28 281
5 852
343 741
-12 %
116 159
-10 %
26 698
67 504
6 260
418 873
22 %
109 082
-6 %
42 000
67 000
10 000
429 939
3%
114 923
5%
41 500
50 000
13 000
438 000
2%
130 000
13 %
2008
678
25
87
2009
1 090
30
274
2010
2 346
67
299
2011
1 829
61
475
2012
825
12
153
2013
2 410
83
603
2014
2 942
165
465
2015E
2 833
22
290
2016E
3 890
132
661
MHG, EBIT distribution
Norway
Faroe Islands
UK
Canada
Chile
Ireland
EBIT farming
Consumer Products
Fish feed
Others
HQ/overhead*
MHG OpEBIT
107
232
225
16
-146
337
251
203
538
-589
31
338
181
0
27
-281
265
-401
21
1 245
280
0
5
-567
964
113
86
3 135
252
0
-1
-81
3 305
81
68
2 531
374
0
9
71
2 985
-91
12
765
176
0
10
-201
750
-63
-30
3 340
-150
0
6
13
3 209
317
32
4 172
122
81
-52
-71
4 252
-321
117
3 143
187
161
25
-192
3 324
21
176
5 418
310
158
28
-80
5 833
The table below sums up our quarterly Marine Harvest estimates per segment.
MHG: “Through the
gradual in-sourcing of
feed, MHG expects
competitive prices for
feed as well as
improved growth, better
feed conversion ratio
and improved quality of
the end product. “
Lower raw material cost
will secure less
expensive fish feed
prices for 2H
Bjugn feed factory: 80%
self-sufficient in Norway
MHG (Harvesting/sales vol)
Norway
Faroe Islands
Scotland
Canada
Chile (sale volumes)
Ireland
Total farming
Farming growth Y/Y
Consumer Products Y/Y
Consumer Sales (internal shar
1Q14
2Q14
3Q14
4Q14
55 107 68 674 64 299 69 941
2 084
3 048
3 086
3 314
10 468 18 274 13 740
6 376
6 368
6 459
7 052
6 819
17 741 16 425 16 736 16 602
476
1 296
2 419
2 069
92 244 114 176 107 332 105 121
15 %
44 %
33 %
2%
25 407 25 866 25 155 31 945
2Q15
3Q15E
4Q15E
65 203 64 036
0
0
7 112 12 351
10 478 11 583
16 067 13 240
616
2 948
99 476 104 158
8%
-9 %
25 814 25 541
2%
-1 %
31 %
29 %
1Q15
56 000
0
16 000
9 000
19 000
3 000
103 000
-4 %
27 916
11 %
32 %
71 700
2 000
16 537
10 939
18 693
3 436
123 305
17 %
35 652
12 %
34 %
32 %
27 %
28 %
36 %
MHG (EBIT-margin (NOK/kg)
Norway
Faroe Islands
Scotland
Canada
Chile (sale volumes)
Ireland
MHG (EBIT/kg - NOK/kg)
Consumer Products (NOK/kg)
1Q14
12.8
21.1
12.7
19.2
6.7
8.4
12.2
-2.48
2Q14
11.9
11.8
12.1
11.0
5.5
10.0
10.9
0.77
3Q14
9.7
13.6
10.0
4.7
6.0
2.5
8.8
1.91
4Q14
11.4
13.0
-4.2
3.7
0.4
4.3
8.1
3.66
1Q15
12.9
0.0
2.7
4.9
-3.3
-1.6
8.6
-0.08
2Q15
9.8
0.0
5.4
2.2
-4.6
18.0
6.8
1.88
3Q15E
10.3
0.0
6.3
5.3
-6.0
10.3
6.2
2.50
4Q15E
11.0
12.0
6.3
7.3
-5.0
10.0
7.6
2.00
MHG - Segment EBIT
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15E
4Q15E
706
44
133
122
119
4
816
36
222
71
91
13
624
42
137
33
101
6
796
43
-27
25
6
9
843
-1
19
51
-53
-1
627
-1
67
25
-61
53
575
0
100
47
-114
31
788
24
104
79
-93
34
1 128
-63
0
-5
30
1 090
1 249
20
0
4
-54
1 219
943
48
20
-52
-47
912
852
117
61
1
0
1 031
858
-2
19
4
-84
795
-27 %
710
48
27
7
-73
719
-41 %
639
70
50
7
-15
751
-18 %
936
71
65
7
-20
1 059
3%
Farming Norway
Farming Faroe Islands
Farming Scotland
Farming Canada
Farming Chile/US
Farming Ireland
Total farming EBIT
Consumer Products
EBIT Feed
EBIT Others
HQ/overhead/elimi.
Group OpEBIT
EBIT Y/Y
Volcano eruption in Chile – Several on-shore plants affected
Page 28
5 October 2015
Negative supply in Chile
also longer term
2Q Chile charge taken
In April, the Calbuco volcano (30 km from Puerto Montt) erupted. The area
surrounding the volcano was heavily affected, including several of MHG’s onshore facilities. Rio Bianco is a fresh water hatchery handling eggs and
producing fry and Copihue is a broodstock facility. Volcanic material and
landslides have affected operations adversely and MHG has lost 6.8 mill fry, 2.4
mill eyed eggs and around 3 700 broodfish. The sea water sites in Region X and
XI have not been affected by the incident.
Farm ing volum es
2015E
Farming Norw ay
2016E
2015E
256 939 263 203 269 000 268 000
-2 %
0%
9 000
0%
-11 %
-1 %
2015E
2 000
2016E
2 000
8 000
2016E
Farming Scotland
52 000
54 112
56 500
57 000
-4 %
Farming Canada
42 000
41 278
41 500
41 500
2%
0%
Farming Chile/US
67 000
64 067
50 000
53 600
5%
-7 %
10 000
9 616
13 000
12 000
4%
8%
429 939 434 276 438 000 441 100
-1 %
-1 %
Farming Ireland
Upstream volum es
Feed volumes
225 645 230 037 246 000 240 037
-2 %
2%
114 923 117 597 130 000 140 000
-2 %
-7 %
Internal sales, %, n.r.
0.31
0.23
0.35
0.27
37 %
29 %
OpEBIT (m ill) per region
2015E
2015E
2016E
2016E
2015E
2016E
Farming Norw ay
2 833
3 018
3 890
3 947
-6 %
-1 %
22
25
132
130
-12 %
1%
290
397
661
727
-27 %
-9 %
203
240
538
493
-16 %
9%
-321
-152
21
139
n.m.
n.m.
Farming Scotland
Farming Canada
Farming Chile
Farming Ireland
117
126
176
165
-7 %
7%
3 143
3 654
5 418
5 601
-14 %
-3 %
EBIT Consumer Products**
187
173
310
310
8%
0%
MHG feed
161
108
158
118
49 %
34 %
25
19
28
24
32 %
17 %
-192
-197
-80
-80
-2 %
0%
3 324
3 757
5 833
5 973
-12 %
-2 %
EBIT Upstream
Others*
HQ/overhead/elimina.
Group Op. EBIT
MHG SOTP VALUATION – Target NOK 124 (118) per share
We continue to value Marine Harvest on market outlook, cultivation conditions
and biological risks. We estimate individual target multiples to the different
farming countries based on 2016 upstream volumes and total theoretical MHG
farming capacity. In Chile, we implement intrinsic values somewhat in line with
latest transaction levels. In total, we value upstream close to EV/EBIT of 10.
Downstream, we continue to apply an EV/EBIT multiple of 10 (10) on the
Consumer Products segment. Within feed, we stick to EV /EBIT of 12 which is
more or less in line with latest transaction (the Cargill / EWOS deal).
MHG Chile, intrinsic SOTP values
No of Lic
MHG AcuiNova, Region XI
36
MHG Region XI
65
MHG Region X
101
US packing stations; LAX, Miami int. airport
Ducktrap, smoke house, Maine
EV MHG Chile, intrinsic values
202
HOG volumes (2016E). Primarily Region XI volumes
HOG capacity
Per lic
25
20
35
100
EV (NOKm )
900
1 300
3 535
200
150
6 085
50 000
160 000
Region X exposure of capacity
EV/cap (NOK)
50 %
38
In total, we maintain SOTP MHG values equal to NOK 124 (118) per share. Buy.
5 October 2015
Page 29
Updated SOTP MHG
values of 124 (118)
NOK/share
Marine Harvest ASA (2016)
EBIT/kg
Impl. P/E 12 (2016E)
Th. Cap.
EV/Cap
285 000
123
2 667
7 000
151
132
132
8.0
1 054
1 378
60 000
99
661
105
9.0
5 949
1 122
49 000
99
538
117
9.0
4 843
202
248
160 000
38
21
n.m
n.m.
6 085
13 000
13
1 000
20 000
88
176
135
10.0
1 760
438 000
521
581 000
94
5 418
125
10.1
54 698
10.1
54 798
14.46
Faroe Islands (spot sales)
16.47
8 000
3
UK (West Coast)
11.70
56 500
41
Canada
12.97
41 500
37
0.42
50 000
13.54
7.31
Chile (intrincic SOTP values)
MHG consumer pack
products: EV/EBIT 10
(10)
2016 HOG Licenses*HOG/license
Norw ay
Ireland (organic salmon)
EV farm ing (incl Sales & Dist.)
269 000
MHG MOWI/Fanad R&D genetics (incl i upstream)
225
EBIT Im pl EV/kg
3 890
130
EV/EBIT
EV (MNOK)
9.0
35 006
18
Centre For Aquaculture Competence (R&D/fish feed) 100%
EV MHG upstream
2
438 000
523
50
5 418
125
100
MHG Consumer Products
130 000
310
10.0
3 100
EV MHG Consum er products
130 000
5 728
10.1
3 100
158
12.0
1 896
MHG feed factory, Bjugn
0.64
246 000
EV MHG Feed division
White halibut (incl standing biomass)
Debt in EUR, USD and
GBP
1 196
5 885
0.3
380
3
28
n.m
300
9.5
2 469
SOTP NovaSea (48%). NIBD: 350m
14.46
40 000
37.3
578
Finnøy Fisk AS (45%)
12.46
2 800
2
35
70
70
Dividends committed, 4q rolling- increased NIBD in model
HQ/eliminations
2 746
-80
EV others/m inorities
1 896
5 833
Group EV values
10.1
-808
4 777
64 571
31.12.16 NIBD (incl Chile)
8 603
Asset values
55 968
Outst. shares
450m
2016 SOTP target value (per share)
124
Source: Fondsfinans Research, *) Licenses including fresh water and brood fish licenses
Risk assessment – Biological considerations
BIOLOGICAL RISKS AND FISH HEALTH CONSIDERATIONS
The sensitivity of MHG estimates to key assumptions is as always high. A
change of NOK 1 per kilo in salmon price should represent an annual EBIT and
CF effect of NOK 400m-420m. MHG primarily sells fish in EUR and USD. MHG
has primarily EUR, CAD, GBP and USD bank debt. The bank debt (Nordea,
DNB, Rabo, ABN) has been refinanced in 2015.
Fish diseases and sea lice issues may hit underlying earnings and values in fish
farming. On the other hand, extra mortality normally leads to lower supply growth
and higher prices. The large smolt strategy of MHG will gradually reduce the sea
water exposure time, and for MHG it is among others important to fallow sites
100% according to plan in order to keep up the strong MAB-yield. Delayed
harvesting will increase sea lice exposure and reduce the MAB-yield. At 1Q MHG
were supportive of the Norwegian White Paper on stricter Aquaculture
regulations. We agree. Stricter regulations will take some time, but still be
positive when all the new regulations will come into force somewhat later on.
The main concerns in Norway are stil sea lice, PD and AGD. Number of PD sites
is down in Norway this year; even Region South seems to be hit quite seriously.
Pancreas Disease also occurs in Scotland. However, in this region AGD
(Amoebic Gill Disease) and PGD (Proliferative Gill Disease/Hamburger disease)
should be the main biological concerns. In Canada, low oxygen levels /algae hit
and kudoa are the main biological concerns.
Delousing of standing biomass in Chile with “Salmosan” has given significant
positive effects the last year. In the long run, “Salmosan” is, however, not a
sustainable solution to the sea lice issues. Finally, rebuilding Region XI in a
sustainable way through coordinated fallowing of major sea waters, should help
long term sea water conditions. Shorter time, the SRS-problems in Region XI
seem to continue and will reduce output from this region. After the termination of
the AquaChile deal, we consider MHG to have limited growing ambitions in
Region XI (only harvesting out AquiNova sites), and will probably to large extent
concentrate on Region X cultivation. ISA in Chile: Has re-emerged in the Chilean
industry. In 1Q there were 2 ISA sites confirmed and we had some additional ISA
outbreaks in 2Q. MHG continue to support strict measured to immediately
harvest out sites with ISA outbreaks. Use of antibiotics in Chile is primarily linked
to the SRS situation. Farmers should consider fallowing waters and committing
some R&D spending on a new vaccine that works.
Page 30
5 October 2015
Definitions of ratings
Buy
Neutral
Low risk: with a potential of min 5%. Medium risk: with a potential of min 10%. High risk: with a
potential of min 20%.
Low risk: -5% to +5%. Medium risk: -10% to +10%. High risk: -20% to + 20%.
Sell
Low risk: min -5%. Medium risk: min -10%. High risk: min -20%.
Risk ratings are based on price volatility, fundamental criteria and perceived risk. Ratings are: Low (L), Medium (M) and High (H).
Target: Our valuation as of today.
Time frame of target: Target is what we value the share as of today.
Recommendation distribution as of 21.09.15:
Companies in each recommendation category that have been
investment banking clients over the past 12 months:
Recommendation
Buy
Neutral
Sell
Total
Recommendation
Buy
Neutral
Sell
Total
No
45
9
12
66
Percent
68 %
14 %
18 %
100 %
No
3
0
0
3
Percent
7%
0%
0%
Our intention is to issue preview and update research on a quarterly basis.
Our investment recommendation is elaborated in accordance with “The Norwegian Securities Dealers Associations” standards.
This report has not been sent to the companies for correction of any factual errors.
Fondsfinans is organized with Chinese walls between the Corporate Department and the Research/Broking Department. In addition,
Fondsfinans has internal instructions and guidelines for handling sensitive information.
The analyst receives compensation that is impacted by overall firm profitability, including investment banking activities.
Fondsfinans is under supervision of The Financial Supervisory Authority of Norway.
The recommendation has not been changed from BUY. The previous recommendation was issued 13.08.15
Ownership per 28.09.15 in Marine Harvest Group:
Analyst (including his/her closely related persons or companies):
0, corresponding to 0% of the company share capital
Employees (including their respective closely related persons or companies):
Group Fondsfinans (including the holdings of its Chairman, his spouse and their closely related companies, Erik Must AS and its 100%
controlled subsidiaries):
17.000, corresponding to 0% of the company share capital.
Fondsfinans may hold shares in Marine Harvest Group as a result of daily trading/market making. Information on such holdings is not
given when of non-significant value.
Fondsfinans does not act as market maker in Marine Harvest Group.
Fondsfinans has not acted as corporate adviser, lead manager in IPO etc. during the past 12 months.
This report was issued and distributed 06.10.15.
DISCLAIMER
This report is provided for information purposes only. It should not be used or considered as an offer to sell or a solicitation of an offer to buy any securities. Any opinions expressed
are subject to change without prior notice. This report is based on information from various sources believed to be reliable. Although all reasonable care has been taken to ensure
that the information herein is not misleading, Fondsfinans AS makes no representation or warranty expressed or implied as to its accuracy or completeness. Neither Fondsfinans
AS, its partners and employees, nor any other person connected with it, accepts any liability whatsoever for any direct or consequential loss of any kind arising out of the use or
reliance on the information in this report. This report is prepared for general circulation and general information. It does not take into account the specific investment objectives and
financial situation of any recipient. Investors seeking to buy or sell any securities discussed or recommended in this report, should seek independent financial advice relating thereto.
This report may not be distributed, quoted from or reproduced for any purpose without written approval by Fondsfinans AS.
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mandates from the company or companies covered in this report. Fondsfinans AS may from time to time as part of its investment services hold positions in securities covered in this
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Regulatory Authority (FINRA) governing research analyst conflicts. The research reports are intended for distribution in the United States solely to “major U.S. institutional investors”
as defined in Rule 15a-6 under the United States Securities Exchange Act of 1934, as amended and may not be furnished to any other person in the United States. Each major U.S.
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6 October 2015
Page 31
Marine Harvest ASA. Chile IFRS continued
Sector:
Aquaculture
Date:
Next result:
Target
06.10.2015
28.okt.15
124
Financial data (NOK mill)
+23 11 30 27
+23 11 30 23
107
Shares outst.:
450.08m
Book equity per share (NOK):
Equity ratio:
Avg daily vol (90d):
39.3
51 %
2 303
Market cap (NOKm):
Net int.bearing debt (NOKm):
Entrprise value (NOKm):
48 159
8 492
56 651
BUY
Recommendation:
Analysts: Bent Rølland
Philip M. Scrase
Price (NOK):
12 months High / Low: 105.8 / 77.3
Weight OSEBX:
3.3187
2012
2013
2014
2015E
2016E
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15E
4Q15E
15 527
-9 667
1 278
19 247
-10 003
3 990
25 548
-13 677
5 200
27 930
-15 603
4 553
31 972
-16 628
7 053
6 565
-5 121
1 444
6 234
-5 074
1 160
6 881
-5 601
1 280
6 418
-5 325
1 093
6 579
-5 539
1 041
6 589
-5 534
1 055
8 343
-6 979
1 364
EBITDA-margin
8%
21 %
20 %
16 %
22 %
22 %
19 %
19 %
17 %
16 %
16 %
16 %
Depreciation
-677
-763
-967
-1 214
-1 219
-225
-248
-268
-299
-305
-305
Operating income
Costs of goods/other op. ex.
EBITDA
Asset write-downs, imp. Losses
OpEBIT (ex IFRS)
EBIT-margin (before IFRS)
-305
13
-18
19
-16
0
0
0
19
1
-17
0
0
644
3 209
4 252
3 324
5 833
1 219
912
1 031
795
719
751
1 059
4%
17 %
17 %
12 %
18 %
19 %
15 %
15 %
12 %
11 %
11 %
13 %
Net IFRS adj
350
1 825
-576
0
0
-825
71
387
-554
-667
0
0
EBIT (operating profit)
995
5 034
3 676
2 103
5 833
394
983
1 418
241
52
751
1 059
6%
26 %
14 %
8%
18 %
6%
16 %
21 %
4%
1%
11 %
13 %
60
222
150
133
240
29
51
55
12
6
57
57
343
-553
-157
-427
0
-213
-2
-29
0
-127
-300
-608
-1 204
-2 146
158
-260
-596
-521
-1 052
208
88
-67
-70
789
3 500
1 523
1 967
5 813
-387
511
393
461
19
441
1 046
-241
EBIT-margin (after FVA biomass)
Associates (NovaSea/Finnøy Fisk)
Write downs/net currency effects
Net financial items
EBT (earnings before tax)
Taxes on profits
0
-122
-658
-752
-449
-1 337
48
-272
-256
-113
6
-101
Profit for the period, cont'd op
412
2 462
771
1 518
4 476
-338
239
137
348
25
339
806
Net profit in the period
412
2 462
780
1 516
4 476
-338
226
129
347
24
339
806
Minority share of profit
Profit MHG shareholders
5
17
12
1
0
2
6
1
1
0
0
0
407
2 445
768
1 515
4 476
-340
220
129
346
25
339
806
-350
Adjustments:
Biomass FV adjustment
-1 825
576
1 221
0
825
-71
-387
554
667
0
0
75
18
1 259
0
0
429
-20
850
0
0
0
0
One off items
392
296
538
399
0
-103
38
252
0
0
0
0
Tax effect on biomass
Net adjustment
Net result (adjusted)
240
357
764
526
-986
1 459
131
2 504
3 272
0
1 620
3 136
0
0
4 476
1 259
1 259
919
104
104
324
914
914
1 043
672
672
1 018
948
948
973
0
0
339
0
0
806
Asset write downs
Out. Shares (year end)
3 623
410
410
450
450
410
410
410
450
450
450
450
EPS (NOK)
EPS (adj.)
0.11
0.21
5.96
3.56
1.87
7.97
3.37
6.97
9.95
9.95
-0.83
2.24
0.54
0.79
0.31
2.54
0.77
2.26
0.05
2.16
0.75
0.75
1.79
1.79
OpCFPS
DPS payments
Multiples:
EV/ Sales
EV/ EBITDA
EV/EBIT
P/E adj
P/B
Farming volumes (HOG):
0.43
0.10
4.83
2.09
9.61
8.34
5.90
5.10
12.70
7.50
3.23
5.00
2.13
1.00
1.30
1.10
1.19
1.20
1.62
1.30
0.76
1.30
2.32
1.30
1.9
9.2
11.3
11.8
2.6
2.0
12.5
17.1
15.4
2.7
1.8
8.0
9.7
10.8
2.3
Norway
Faroe Islands
UK
Canada
Chile
Ireland
Total HOG volumes
Segment revenues:
Revenues farming
Revenues fish feed
Revenues Consumer Products
MHG Consumer products
Revenues Consumer Products
Consumer Products (prod weight)
EBIT-margin
EBIT/kg Consumer Products
EBIT/kg, upstream
255 306
6 893
40 261
40 221
40 222
9 407
392 310
222 494
5 665
48 390
33 059
28 281
5 852
343 741
258 021
11 532
48 858
26 698
67 504
6 260
418 873
256 939
2 000
52 000
42 000
67 000
10 000
429 939
269 000
8 000
56 500
41 500
50 000
13 000
438 000
68 674
3 048
18 274
6 459
16 425
1 296
114 176
64 299
3 086
13 740
7 052
16 736
2 419
107 332
69 941
3 314
6 376
6 819
16 602
2 069
105 121
65 203
0
7 112
10 478
16 067
616
99 476
64 036
0
12 351
11 583
13 240
2 948
104 158
56 000
0
16 000
9 000
19 000
3 000
103 000
71 700
2 000
16 537
10 939
18 693
3 436
123 305
13 003
0
3 995
12 894
0
5 700
16 365
1 191
9 597
17 144
2 350
10 364
19 212
2 706
12 480
4 442
0
2 211
4 018
539
2 156
4 029
652
3 006
3 859
392
2 361
4 229
502
2 267
4 027
728
3 586
5 029
728
3 956
3 995
128 575
176
4.4 %
1.37
5 700
116 159
-150
-2.6 %
-1.29
9 597
109 082
122
1.3 %
1.12
10 364
114 923
187
1.8 %
1.63
12 480
130 000
310
2.5 %
2.38
2 266
25 866
20
0.9 %
0.77
2 156
25 155
48
2.2 %
1.91
3 006
31 945
117
3.9 %
3.66
2 361
25 814
-2
-0.1 %
-0.08
2 267
25 541
48
2.1 %
1.88
2 492
27 916
70
2.8 %
2.50
3 244
35 652
71
2.2 %
2.00
3.2
1.7
3.8
-3.6
-2.3
1.3
1.9
1.37
0.00
4.5
765
176
0
10
10.8
14.7
12.5
10.2
-2.2
-5.1
9.5
-1.29
0.00
5.1
3 340
-150
0
6
11.4
14.3
9.5
9.4
4.7
5.1
9.6
1.12
0.65
11.5
4 172
122
81
-52
11.0
11.0
5.6
4.8
-4.8
11.7
7.3
1.63
0.71
6.3
3 143
187
161
25
14.5
16.5
11.7
13.0
0.4
13.5
12.4
2.38
0.64
13.3
5 418
310
158
28
11.9
11.8
12.1
11.0
5.5
10.0
10.9
0.77
0.00
11.6
1 249
20
0
4
9.7
13.6
10.0
4.7
6.0
2.5
8.8
1.91
0.36
8.2
943
48
20
-52
11.4
13.0
-4.2
3.7
0.4
4.3
8.1
3.66
0.91
5.1
852
117
61
1
12.9
0.0
2.7
4.9
-3.3
-1.6
8.6
-0.08
0.50
5.4
858
-2
19
4
9.8
0.0
5.4
2.2
-4.6
18.0
6.8
1.88
0.57
7.0
710
48
27
7
10.3
0.0
6.3
5.3
-6.0
10.3
6.2
2.50
0.71
3.3
639
70
50
7
11.0
12.0
6.3
7.3
-5.0
10.0
7.6
2.00
0.93
8.5
936
71
65
7
Balance Sheet (IFRS) MNOK
Total fixed assets
Total current assets
Total assets
Total equity
2012
13 580
9 687
23 267
11 689
2013
16 469
16 086
33 601
16 372
2014
18 662
18 294
36 974
14 718
2015E
19 567
15 587
35 162
18 148
2016E
20 618
15 637
36 263
20 586
Largest shareholders
Geveran Trading Co L
Folketrygdfondet
Clearstream Banking
City Bank
Total debt
Total equity and liabilities
Equity ratio
NIBD
Dividends
Return on equity
Cash flow from operations
Net investments
Free cash flow
Cash flow from financing (incl div)
Cash end period
11 596
23 285
50 %
5 399
362
4%
1 553
1 483
70
-32
318
17 041
33 601
49 %
7 797
857
17 %
1 982
2 473
-490
587
561
22 256
36 974
40 %
9 268
3 421
5%
3 944
1 246
2 698
-2 025
1 408
17 014
35 162
52 %
8 653
2 295
9%
2 654
1 609
1 045
-2 769
-416
15 676
36 262
57 %
8 603
3 376
23 %
5 716
2 030
3 686
-3 636
-366
State Street Bank
State Street Bank
JP Morgan
Euroclear Bank
State Street Bank
Geveran Trading Co L
Jupiter European
JP Morgan
Top 12
Others
Total
Farming Norway
Farming Scotland
Farming Canada
Farming Chile/US
Farming Ireland
Group EBIT/kg (upstream)
EBIT/kg Consumer Products
EBIT/kg fish feed
Cash flow per kilo HOG fish
EBIT farming (NOKm)
EBIT Feed
EBIT Others
Number of shares (1000)
109 129
41 472
22 190
11 507
02.okt.15
24.2%
9.2%
4.9%
2.6%
9 689
7 098
6 908
6 266
5 946
5 444
5 203
4 350
235 202
214 884
450 086
2.2%
1.6%
1.5%
1.4%
1.3%
1.2%
1.2%
1.0%
52.3%
47.7%
100 %
Lerøy Seafood Group ASA
BUY
Results date: 11 November 2015
Share data (NOK m)
LSG
Sector
Aquaculture
Reuters/ Bloomberg
LSG
Risk rating
Medium
Out shares (1.000)
54 577
Market cap
15 282
NIBD
2 611
EV
17 892
Free float %
30 %
66
High/ low 52w
293.0 / 209.0
Weight OSEBX
0.6700
19/ 11/ 25
07/ 04/ 17
Estim ate changes
Curr
Prev
Curr
Prev
%
%
Tons/MNOK
2015E
2015E
2016E
2016E
2015E
2016E
EBIT (before IFRS adj)
1 748
1 712
2 364
2 307
2%
2%
30.19
-14 %
EPS
14.99
17.37
31.18
3%
EPS adj.
25.31
23.17
31.18
30.19
9%
3%
LSG Midt
59 710
61 710
65 000
62 500
-3 %
4%
27 836
31 259
28 500
32 400
-11 %
-12 %
59 710
61 710
65 000
62 500
-3 %
147 256 154 679 158 500 157 400
-5 %
1%
87 %
88 %
LSG Aurora (North )
LSG Sjøtroll (West)
Norw egian volumes (t)
UK volumes (t)
EBIT Farm ing (NOKm )
29 045
15 495
Curr
29 200
15 495
Curr
Curr
Curr
LSG Midt
723
674
1 021
891
7%
15 %
LSG Aurora (North )
342
372
385
429
-8 %
-10 %
Farming EBIT, Norw ay
EBIT VAP
EBIT S&D
%
4%
-2 %
%
256
261
404
438
1 320
1 307
1 810
1 758
1%
3%
96
103
104
124
-7 %
-16 %
293
301
410
425
Curr
Curr
Curr
Curr
%
%
LSG Midt
12.1
10.9
15.7
14.3
11 %
10 %
LSG Aurora (North )
12.3
11.9
13.5
13.2
3%
2%
4.3
4.2
6.2
7.0
1%
-11 %
Farming EBIT/kg, Norw ay
9.0
8.4
11.4
11.2
6%
2%
EBIT/kg NOK
-3 %
-8 %
-4 %
Positive downstream development set to continue
We expect LSG to report 3Q15 EBIT of NOK 4403m based on 43 000 t HOG
(+4%Y/Y). We expect the positive development in the downstream operations
to continue, especially within Sales & Distribution, where the management has
guided on gradually higher margin level and profitability. The S&D investments
should continue to pay off nicely and the company is about to grow
opportunities in Spain and Finland. We expect LSG’s Nordic and European
downstream entities to continue performing. With extensive downstream
operations, LSG is less sensitive towards volatile HOG salmon prices than
more upstream-focused players. LSG has fixed price contracts through the
value chain. The long term agreement with Norgesgruppen is core.
Farming conditions in Region Mid seem to be somewhat more uncertain this
this year due to high sea lice pressure in certain areas. We assume that LSG
has gone through forced 3Q harvesting in this region in order to help
conditions through fallowing. In opposite, in Region West the conditions should
be safer this autumn due to cold summer waters helping conditions after PD
incidences in April and May. We consider cost reduction to come through from
3Q. At 2Q LSG guided on lower cost in Sjøtroll from 3Q15 onwards, driven by
positive effects from more use of cleaner-fish and reduced need for costly
chemical sea lice treatments. Lately The Norwegian Government increased
trout MAB by 5% in order to compensate for the new import restrictions to
Russia/Belarus on the trout.
In total, we adjust 2015 and 2016 EPS adj. equal to NOK 25.3 and NOK 31.2
(30.2). We adjust our 2016 SOTP target to NOK 350 (338) per share
corresponding to EV/cap of NOK 87 and P/E16 of somewhat above 11x (11).
Key figures (NOK m )
2012
2013
2014
2015E
2016E
3Q14
4Q14 3Q15E 4Q15E
Revenues
9 103
10 818
12 580
13 409
14 251
2 962
3 261
3 286
3 494
EBITDA
812
1 938
2 043
2 146
2 764
323
492
540
635
EBIT (before IFRS adj)
487
1 626
1 789
1 748
2 364
303
435
440
535
IFRS biomass adj.
295
764
-328
-563
0
-222
579
0
0
25
192
92
68
82
12
30
14
21
PTP
712
2 480
1 434
1 150
2 377
64
992
431
536
EPS
9.7
35.7
18.3
15.0
31.2
0.8
12.5
5.6
7.0
EPS (adj)
6.0
23.3
22.2
25.3
31.2
3.5
1.2
5.6
7.0
DPS payments
7.0
7.0
10.0
12.0
14.0
2 232
2 165
1 877
2 324
1 916
2 209
1 877
2 609
2 324
Associates (UK farming)
Bent Rølland
Fondsfinans AS
TEL: +47 23 11 30 27
[email protected]
NIBD
Philip M. Scrase
Fondsfinans AS
TEL: +47 23 11 30 23
[email protected]
EV/ Sales
Norw egian farm ing
Farming grow th
153 599 144 817 158 249 160 916 166 418 41 499 42 479 43 000 42 500
12 %
-6 %
9%
2%
3%
13 %
3%
4%
Upstream EBIT (NOK/kg)
1.6
9.2
8.7
8.2
10.9
3.7
7.0
7.8
9.3
EBIT/kg (all inclusive)
3.2
11.2
11.3
10.9
14.2
7.3
10.2
10.2
12.6
1.0
1.1
1.3
1.4
1.3
EV/ EBITDA
11.5
6.1
7.8
9.0
6.9
EV/EBIT, before adj
19.1
7.3
8.9
11.1
8.0
P/E adj.
21.6
7.6
11.6
12.3
10.0
P/B
1.2
1.3
1.7
2.1
1.8
NIBD/kg
15
15
12
14
12
0%
Lerøy Seafood Group ASA - 3Q15 Preview 6 October 2015
Lerøy Seafood Group guidance and segment tables
Integrated company
LSG is a fully integrated Norwegian salmon and trout farmer with extensive
operations in three clusters along the Norwegian coast, a global distribution
network and a growing value added downstream operation with primarily Nordic
and European VAP/Sales & Distribution exposure.
The table below provides our 3Q and 4Q15 LSG estimates per segment. We
expect strong downstream performance to continue. LSG has lately invested in
increased downstream capacity that should continue to pay off.
New LSG brand:
Introducing “Glad Laks”
at 3Q.
LSG Brandasund
packing station in
Hordaland
In Region Mid we forecast increased cost due to forced harvesting driven by sea
lice issues. Cost per kilo should climb in Region Mid and Region North.
Conditions in Region South are safer this year and we expect cost reduction to
come through in this region from 3Q. Lately The Norwegian Government
increased trout MAB by 5% in order to compensate for the new import
restrictions to Russia/Belarus on the trout. This should also help
LSG key figures (NOKm )
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15E
4Q15E
Revenues
3 180
3 177
2 962
3 261
3 278
3 352
3 286
3 494
EBITDA
638
590
323
492
501
470
540
635
EBIT (before IFRS adj)*
550
501
303
435
404
370
440
535
75
42
0
28
535
Sales gain
Op. EBIT (ex. gains)
550
501
228
393
404
342
440
-478
-207
-222
579
-348
-215
0
0
Associates (UK farming)
38
13
12
30
21
11
14
21
PTP
95
284
64
992
42
142
431
536
Minority/Sjøtroll adj
-1
-23
-28
-54
6
-3
-17
-19
1.60
3.39
0.77
12.54
0.80
1.56
5.61
7.02
10.35
7.18
3.47
1.16
7.18
5.50
5.61
IFRS biomass adj.
EPS
EPS (adj)
DPS paid
10
OpCF
NIBD
Segm ents (t)
LSG Midt
12
593
397
-67
493
269
155
226
455
1 750
2 052
2 209
1 877
1 892
1 893
1 894
1 895
VOL
VOL
VOL
VOL
VOL
VOL
VOL
VOL
13 837
18 606
17 684
18 157
15 454
18 916
20 000
19 000
LSG Aurora
5 100
5 006
6 131
10 524
7 359
5 977
7 000
7 500
LSG Sjøtroll
14 390
17 332
17 684
13 798
12 210
15 500
16 000
16 000
Norw egian upstream (t)
42 500
33 327
40 944
41 499
42 479
35 023
40 393
43 000
LSG volumes Y/Y
0%
21 %
13 %
3%
5%
-1 %
4%
0%
EBIT Segm ents
EBIT
EBIT
EBIT
EBIT
EBIT
EBIT
EBIT
EBIT
LSG Midt
228
184
101
153
170
164
180
209
LSG Aurora
98
77
48
146
110
68
74
90
LSG Sjøtroll
179
159
5
0
42
35
83
96
EBIT Farm ing
505
420
154
299
322
267
337
395
EBIT S&D
39
64
56
82
63
67
66
97
EBIT VAP
15
21
28
31
18
18
27
33
550
501
238
412
403
352
430
525
-9
-4
65
23
1
19
10
10
Group EBIT
EBIT elimination/HQ
Segm ents (EBIT/kg):
EBIT/kg EBIT/kg EBIT/kg EBIT/kg EBIT/kg EBIT/kg EBIT/kg EBIT/kg
LSG Midt
16.5
9.9
5.7
8.4
11.0
8.6
9.0
11.0
LSG Aurora
19.3
15.5
7.8
13.9
14.9
11.4
10.5
12.0
LSG Sjøtroll
12.4
9.2
0.3
0.0
3.4
2.3
5.2
6.0
EBIT/kg ("all inclusive")
16.5
12.2
5.5
9.3
11.5
8.5
10.2
12.6
OpCF/kg fish
17.8
9.7
-1.6
11.6
7.7
3.8
5.2
10.7
Latest 2015 harvesting volume guidance of 166’ t – Might be somewhat
high due to delayed feeding also in August and partly in September
The table below provides estimated volumes and 2015 guidance details per
segment.
Page 34
5 October 2015
No of
2016
Sm olt
2015G
2012
2013
2014
2015E
Upstream segm ents
Licenses
Vol/lic
cap
Curr guid
actual
actual
actual
FF
FF
55
1 326
22
73 000
61 800
58 800
68 284
73 370
72 918
LSG Aurora*
26
1 096
11
31 000
19 900
24 217
26 761
27 836
28 500
LSG Sjøtroll **)
61
1 066
23
62 000
71 899
61 800
63 204
59 710
65 000
LSG Norw ay
142
1 133
56
166 000
153 599
144 817
158 249
160 916
166 418
LSG Midt ***)
142 LSG licenses
26 licenses in Region
North, incl. 8 Villa
licenses + 1 new noncommercial license at
Skjervøy
Lerøy Norw ay Y/Y
4.9 %
2016E
12 %
-6 %
9%
2%
3%
LSG Midt ***)
-1 %
-5 %
16 %
7%
-1 %
LSG Aurora*
10 %
22 %
11 %
4%
2%
LSG Sjøtroll **)
27 %
-14 %
2%
-6 %
9%
27 100
26 800
27 508
29 045
29 200
UK - Scottish Sea Farms (100%)
37
7.0
31 000
*) LSG Aurora includes Villa Organic (8 licenses) from 2H14 (6000 t), 1 additional non-commercial license at Skjervøy
**) LSG Sjøtroll; Fossen, Sjøtroll and VestStar
***) LSG Midt; Hydrotech and Midnor
Updated LSG estimates per segment incl. Scottish Sea Farms (100% basis)
LSG farming volumes (t HOG)
LSG Midt
LSG Aurora (North)
Total Norwegian HOG volumes
Norwegian farming growth Y/Y
Scottish Sea Farms (100%)
UK supply growth Y/Y
Downstream:
Separate VAP and
Sales & Distribution
segments (long term
guidance: 3-5% margin)
2010
2011
2012
2013
2014
2015E
2016E
59 300
62 400
61 800
58 800
68 284
73 370
72 918
20 200
18 100
19 900
24 217
26 761
27 836
28 500
37 300
56 600
71 899
61 800
63 204
59 710
65 000
116 800 137 100 153 599 144 817 158 249 160 916 166 418
7%
17 %
12 %
-6 %
9%
2%
3%
27 100
21 900
27 100
26 800
27 508
29 045
29 200
3%
-19 %
24 %
-1 %
3%
6%
1%
LSG EBIT-margin (NOK/HOG)
LSG Midt
LSG Aurora (North)
EBIT-margin (HOG/NOK)
Scottish Sea Farms (NOK/HOG)
2010
13.3
13.1
8.1
11.6
10.3
2011
8.3
8.6
5.7
7.1
5.3
2012
2.4
4.2
0.4
1.6
2.0
2013
8.6
14.8
7.4
9.2
8.2
2014
9.8
13.8
5.4
8.7
8.4
2015E
9.8
12.3
4.3
8.2
6.8
2016E
14.0
13.5
6.2
10.9
9.1
LSG EBIT distribution
LSG Midt
LSG Aurora (North)
Farming EBIT, Norway
EBIT S&D
EBIT VAP
EBIT VAP & S&D
LSG Op.EBIT
EBIT-eliminations
EBIT, Scottish Sea Farms (100%)
2010
470
265
278
1 012
255
4
2011
361
155
198
715
236
9
2012
167
83
16
267
190
49
2013
326
359
201
885
207
66
2014
666
370
343
1 379
241
95
2015E
723
342
256
1 320
293
96
2016E
1021
385
404
1 810
410
104
259
246
239
273
336
389
514
1 586
-31
280
1 213
-11
115
487
9
55
1 626
-28
221
1 789
75
232
1 748
39
199
2 364
40
265
5 October 2015
Page 35
LSG Volume profile
quarter by quarter
Somewhat more
uncertain biology in
Region Mid – Safer in
Region West this year
Villa harvesting for 3Q
leading to increased
cost in Region North
Farming volumes (HOG)
LSG Midt
LSG Aurora
2Q14
3Q14
4Q14
1Q15
2Q15 3Q15E 4Q15E 1Q16E 2Q16E
18 606 17 684 18 157 15 454 18 916 20 000 19 000 15 918 17 500
5 006
6 131 10 524
7 359
5 977
7 000
7 500
7 000
6 500
LSG Norway (t)
Supply growth Y/Y
UK supply growth Y/Y
17 332 17 684 13 798 12 210 15 500 16 000 16 000 15 000 16 000
40 944 41 499 42 479 35 023 40 393 43 000 42 500 37 918 40 000
21 %
13 %
3%
5%
-1 %
4%
0%
8%
-1 %
6 638
8 108
5 501
5 589
6 556
8 400
8 500
5 600
6 500
30 %
-5 % -18 % -23 %
-1 %
4%
55 %
0%
-1 %
EBIT-margin (NOK/HOG)
LSG Midt
LSG Aurora
EBIT-margin (HOG/NOK)
Scottish Sea Farms (NOK/HOG)
2Q14
9.9
15.5
9.2
10.3
10.2
3Q14
5.7
7.8
0.3
3.7
5.9
4Q14
8.4
13.9
0.0
7.0
5.3
1Q15
11.0
14.9
3.4
9.2
7.7
2Q15
8.6
11.4
2.3
6.6
5.7
3Q15E 4Q15E 1Q16E 2Q16E
9.0
11.0
14.0
14.0
10.5
12.0
15.0
14.0
5.2
6.0
5.8
6.2
7.8
9.3
10.9
10.9
6.0
8.0
9.0
8.0
Farming EBIT (LSG)
LSG Midt
LSG Aurora
Farming EBIT, Norway
EBIT S&D
EBIT VAP/Others
EBIT VAP & S&D
LSG Op.EBIT
Elim. OpEBIT/HQ/adj
EBIT, Scottish Sea Farms (100%)
2Q14
184
77
159
420
64
21
3Q14
101
48
5
154
56
28
4Q14
153
146
0
299
82
31
1Q15
170
110
42
322
63
18
2Q15
164
68
35
267
67
18
3Q15E 4Q15E 1Q16E 2Q16E
180
209
223
245
74
90
105
91
83
96
86
99
337
395
414
435
66
97
93
107
27
33
21
23
85
84
113
81
85
93
130
114
130
501
-4
68
303
65
48
435
23
29
404
1
43
370
19
37
440
10
50
535
10
68
538
10
50
575
10
52
LSG SOTP valuation – NOK 350 (338) – EV/cap of NOK 87 EV/ and implicit
P/E (16) of somewhat above 11 (11)
We value LSG based on assessments of risks and productivity in the different
geographic regions, as each is assessed separately. Downstream S&D and VAP
are separate segments. Last year, the CEO commented that annual trout
production is in the range of 25’-26’t HOG.
We conclude SOTP values of NOK 350 (338) per share. Stronger EURNOK ratio
is positive for LSG. We maintain our BUY recommendation.
Cost reduction in
Region West
Decent downstream
operations
2016 SOTP equal to
NOK 350 (338) included
2016 dividend
Licenses Volumes Capacity*
EBIT/kg EBIT2016
Values EV/EBIT Impl EV/kg
EV/cap
LSG Midt (Hydrotech+Midnor)
55
72 918
74 250
14.0
1 021
8 167
8.0
112
110
LSG Aurora/Villa
26
28 500
34 125
13.5
385
3 273
8.5
115
96
LSG Vest (36) & Sjøtroll (25), 50.7%
61
65 000
70 150
6.2
404
4 039
10.0
62
58
EV LSG farming Norway
142
166 418
178 525
10.87
1 810
15 478
8.6
93
87
41
14 600
16 000
9.1
265
1 060
8
73
66
31.12.2016 NIBD SSF (50%) - no dividend allocated to CF
0
LSG VAP**
104
1 040
10
LSG S&D
2.463
410
3 279
8
Total EV
2 324
20 857
9.0
NIBD 31.12.16E (incl. Sjøtroll 100%)
1 916
2016 Dividend
14.0
764
Sjøtroll adj (20.7% of Sjøtroll)
12.25
0.201
811
Sjøtroll & Rohde NIBD adj.
118
Equity values
19 012
Own shares
329 776
103
Outst. Shares
54.6
SOTP values - target
350
Source: FF Research, *) Theoretical capacity, Fondsfinans estimates **) VAP capacity of 40-50' t. Fossen: 12't, Smøgen: 12't, Rodee: 18't
Risk assessment
The sensitivity of key assumptions is high, with salmon prices being the key
factor. However, LSG has large downstream exposure that dampens the
potential volatility. Our current 2016 export reference price is EUR 5/kg. Fish
diseases could always hit long term underlying values in fish farming. In the
Northern hemisphere, 2Q and 3Q is normally high season for potential fish
diseases (whereas the risk profile through the year is more or less reverse in
Chile). The risk increases in summer and in 3Q when the sea water temperatures
and the density in the cages are at peak. On the other hand 4Q and 1Q are
normally low season for fish diseases. LSG has high exposure to Region West
(Hordaland), which is the core area of PD in Norway as well as Region Mid. Sea
water conditions in Region Mid seems to be gradually safer lately. Farmers have
for the first time stocked wrasse fish.
Page 36
5 October 2015
Buy
Neutral
Low risk: -5% to +5%. Medium risk: -10% to +10%. High risk: -20% to +20%.
Sell
Recommendation
Buy
Neutral
Sell
Total
Recommendation
Buy
Neutral
Sell
Total
No
45
9
12
66
Percent
68 %
14 %
18 %
100 %
No
3
0
0
3
Percent
7%
0%
0%
This report has not been sent to the company for correction of any factual errors.
The recommendation has not been changed from BUY. The previous recommendation was issued 17.07.15.
Ownership per 28.09.15 in Lerøy Seafood Group:
Fondsfinans may hold shares in Lerøy Seafood Group as a result of daily trading/market making. Information on such holdings is not
Fondsfinans does not act as market maker in Lerøy Seafood Group.
This report was issued and distributed 06.10.15
DISCLAIMER
Fondsfinans AS and distributed in the United States by Fondsfinans Inc. under Rule 15a-6(a)(2). Any U.S. Person receiving these reports that desires to effect transactions in any
5 October 2015
Page 37
Sector:
Date:
Next result:
Target
Recommendation:
Financial data (NOK mill)
+47 23113027
Philip M. Scrase +47 23113023
Aquaculture
312
Price (NOK):
06.okt.15
141
11.nov.15
Equity ratio:
53 %
350
66
BUY
12 months High / Low:93.0 / 209.0
Shares outst.:
Market cap (NOKm):
OSEBX:
54.58m
17 028
2 611
19 639
0.6700
2012
2013
2014
2015E
2016E
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15E
4Q15E
9 103
-6 442
812
9%
10 818
-6 781
1 938
18 %
12 580
-8 003
2 043
16 %
13 409
-8 571
2 146
16 %
14 251
-8 794
2 764
19 %
3 177
-2 002
590
19 %
2 962
-1 985
323
11 %
3 261
-2 042
492
15 %
3 278
-2 133
501
15 %
3 352
-2 215
470
14 %
3 286
-2 092
540
16 %
3 494
-2 131
635
18 %
-292
-33
487
5%
295
782
-307
-6
1 626
15 %
764
2 390
-369
115
1 789
14 %
-328
1 462
-398
0
1 748
13 %
-563
1 185
-401
0
2 364
17 %
0
2 364
-89
0
501
16 %
-207
294
-95
75
303
10 %
-222
81
-97
40
435
13 %
579
1 014
-97
0
404
12 %
-348
56
-100
0
370
11 %
-215
155
-100
0
440
13 %
0
440
-100
0
535
15 %
0
535
25
192
92
68
82
13
12
30
21
11
14
21
0
-95
712
-184
528
-1
527
0
-102
2 480
-435
2 045
-99
1 947
0
-120
1 434
-329
1 105
-106
999
0
-103
1 150
-299
852
-33
818
0
-68
2 377
-594
1 783
-81
1 702
0
-23
284
-75
208
-23
185
0
-29
64
6
70
-28
42
0
-52
992
-253
739
-54
684
0
-35
42
-4
38
6
44
0
-25
142
-53
88
-3
85
0
-24
431
-108
323
-17
306
0
-20
536
-134
402
-19
383
-295
80
-764
190
328
0
563
0
0
0
207
0
222
0
-579
0
348
0
215
0
0
0
0
0
Net adjustment
-199
-677
328
1 269
EPS
9.7
35.7
Outstandig shares (mill)
54.6
54.6
EPS (adj)
6.0
23.3
Impl. CF per kilo fish
2.9
8.7
DPS
7.0
7.0
Multiples:
EV/ Sales
EV/ EBITDA
EV/EBIT, before adj
P/E adj.
P/B
Farming in Norway (HOG t) -new segment structure
LSG Midt (Midnor+Hydrotech)
61 800
58 800
LSG Aurora
19 900
24 217
LSG Sjøtroll (West and Sjøtroll)
71 899
61 800
Norwegian farming (upstream 153 599
144 817
Volumes Y/Y
12 %
-6 %
Farming income
4 377
5 716
EBIT farming
239
1 327
Price/volum
28.5
39.5
EBIT/kg
1.6
9.2
211
1 210
18.3
54.6
22.2
8.9
10.0
563
1 381
15.0
54.6
25.3
6.8
12.0
0
1 702
31.2
54.6
31.2
5.1
14.0
207
392
3.4
54.6
7.2
9.7
147
190
0.8
54.6
3.5
-1.6
-621
64
12.5
54.6
1.2
11.6
348
392
0.8
54.6
7.2
7.7
215
300
1.6
54.6
5.5
3.8
0
306
5.6
54.6
5.6
5.2
0
383
7.0
54.6
7.0
10.7
1.3
7.8
8.9
11.6
1.7
1.4
9.0
11.1
12.3
2.1
1.3
6.9
8.0
10.0
1.8
68 284
26 761
63 204
158 249
9%
6 589
1 379
41.6
8.7
73 370
27 836
59 710
160 916
2%
6 773
1 320
42.1
8.2
72 918
28 500
65 000
166 418
3%
7 232
1 810
43.5
10.9
18 606
5 006
17 332
40 944
21 %
1 740
420
42.5
10.3
17 684
6 131
17 684
41 499
13 %
1 575
154
38.0
3.7
18 157
10 524
13 798
42 479
3%
1 782
299
42.0
7.0
15 454
7 359
12 210
35 023
5%
1 555
322
44.4
9.2
18 916
5 977
15 500
40 393
-1 %
1 709
267
42.3
6.6
20 000
7 000
16 000
43 000
4%
1 708
337
39.7
7.8
19 000
7 500
16 000
42 500
0%
1 801
395
42.4
9.3
3 104
Operating income
Costs of goods
EBITDA
EBITDA-margin
Depreciation
Write down of fixed assets
EBIT (ex IFRS)
EBIT-margin
IFRS fair value adj
EBIT (operating profit)
Associates (Norskott)
Write down financial assets
Net financials (incl agio/disagio)
EBT (earnings before tax)
Tax cost
Profit for the period
Minority share of profit
Profit to LSG shareholders
Adjustments:
Biomass FV adjustment
skattejustering av biomasse
Lerøy Sales & Distribution
S&D income
EBIT S&D
9 459
10 261
11 962
12 049
12 153
2 998
2 820
3 078
3 075
3 024
2 846
190
207
241
293
410
64
56
82
63
67
66
97
2.0 %
2.0 %
2.0 %
2.4 %
3.4 %
2.1 %
2.0 %
2.7 %
2.0 %
2.2 %
2.3 %
3.1 %
S&D -margin,%
Lerøy VAP/Other production
VAP income
EBIT VAP
VAP-margin,%
EBIT adj, HQ/overhead
UK farming (SSF, 100%)
Farming volumes (t)
Farming revenues
Price/volume
1 078
49
5%
9
1 236
66
5%
-28
1 609
95
6%
75
1 780
96
5%
39
1 812
104
6%
40
395
21
5%
-4
410
28
7%
65
437
31
7%
23
425
18
4%
1
468
18
4%
19
440
27
4%
10
447
33
4%
10
27 100
937
34.6
26 800
1 189
44.4
27 508
1 385
50.3
29 045
1 573
54.2
29 200
1 570
53.8
6 638
332
50.0
8 108
373
46.0
5 501
289
52.5
5 589
325
58.1
6 556
344
52.5
8 400
445
53.0
8 500
459
54.0
EBIT bef adj.
EBIT-margin (NOK/HOG)
Balance Sheet (IFRS)
Total non-current assets
Total assets
Total equity
Equity ratio (cov=30%)
Retur on equity
55
2.0
2012
6 445
5 328
11 773
5 964
11 774
51 %
15 %
221
8.2
2013
7 143
6 762
13 905
7 549
13 904
54 %
35 %
232
8.4
2014
7 561
7 297
14 857
8 080
14 858
54 %
20 %
199
6.8
2015E
7 966
6 820
14 786
8 257
14 785
56 %
18 %
265
9.1
2016E
8 277
7 080
15 357
9 207
15 356
60 %
28 %
68
48
29
43
10.2
5.9
5.3
7.7
Lerøy Seafood Group ASA Shares (1000)
Austevoll Seafood ASA
34 144
Folketrygdfondet
2 298
State Street
914
Pareto Aksje Norge ASA
762
JPMorgan
540
Pareto Aktiv
523
State Street
519
37
5.7
50
6.0
68
8.0
17.sep.15
62.6%
4.2%
1.7%
1.4%
1.0%
1.0%
1.0%
NIBD
Cash flow from investments
Cash flow from financing
New equity
2 232
444
-599
-361
0
2 165
1 259
-698
-784
0
1 877
1 416
-406
-529
0
2 324
1 093
-775
-532
0
1 916
851
-630
-1 212
0
Danske Invest
JPMorgan
OTHER SHAREHOLDERS
TOTAL SHAREHOLDERS
452
428
330
13 668
54 577
0.8%
0.8%
0.6%
25.0%
100%
SalMar ASA
Downgrade to Neutral (Buy)
Share data (NOK m)
05.okt.15
Sector
Aquaculture
Reuters/ Bloomberg
SALM
Risk rating
Medium
Outst shares (mill)
113.3
Market cap
15 409
NIBD
2 741
EV
18 150
Free float %
<55
Average volume
26 261
High/ low 52w
138.0 / 95.7
Weight OSEBX
0.7209
22/ 26/ 22
10/ 19/ 14
Estimate changes
Estim ate changes
2015E
2016E
Tons/MNOK
Curr
Prev
Curr
Prev
2015E
2016E
EBITDA
1 857
1 875
2 220
2 467
-1 %
-10 %
EBIT
1 552
1 570
1 911
2 158
-1 %
Assosiates (UK/Norskott)
-11 %
56
62
78
86
-10 %
-9 %
PTP
1 397
1 421
1 897
2 151
-2 %
-12 %
EPS adj.
10.15
10.03
12.39
14.05
1%
-12 %
10.2
10.7
12.8
15.4
-5 %
-17 %
Segm ents, EBIT/HOG
Central Norw ay
Northern Norw ay
Salmar Rauma
All incl m argin Norw ay
16.5
2%
-10 %
5.5
5.9
9.6
6.7
-7 %
43 %
11.19
11.8
11.36
11.6
13.82
14.8
15.25
-1 %
-9 %
79 400
78 400
76 000
78 000
1%
-3 %
Farm ing volum e
Central Norw ay
Northern Norw ay
Salmar Rauma
Volum e, Norw ay
41 800
41 800
46 000
46 000
0%
0%
17 500
18 000
16 300
17 500
-3 %
-7 %
138 700 138 200 138 300
141 500
0%
-2 %
Segm ent EBIT
1 200
Central and Rauma have faced biological challenges in recent years, driving
cost. While PD incidents in the region are significantly down this year, SALM
reported on major sea lice challenges in the region during 2Q. The situation
has persisted in 3Q, with increasing resistance against chemical treatments.
Illustrating the severity, according to media, SALM has resorted to delousing
with formalin at several instances without seeking approval. While the
company comments that the regulations regarding formalin have been unclear,
the Norwegian Food Safety Authority states that any future use will be
prosecuted. The county governor is, according to media, considering to report
the formalin use to the police. The region remains very challenging, and we
expect cost to remain high.
In order to secure long-term sustainable growth and capacity utilization in
North, SALM is building a NOK 550m 20m capacity smolt plant at Senja for
2H16 completion. Further, the Folla smolt plant in Mid Norway will be enlarged
to 20m large smolt capacity (currently 12m-13m). Thus, capex will be high in
2015-2017. We regard the smolt investments as accretive.
Mid Norway, the planned cultivation zones will likely lead to moderate supply,
safer farming conditions and eventually lower biological cost. With stricter
rules, the high license yield will likely decline. On balance, SALM should gain
from safer conditions. While SALM now has cleaner-fish farming in place (3m
fish in Rauma), it seems to be lagging in this area, implying continued
dependence on chemicals for the time being.
We estimate 2015 and 2016 EPS adj. of NOK 10.2 (10) and 12.4 (14.1). We
calculate 2016 SOTP values of NOK 137 (140), corresponding to P/E (16) of
around 11(10). We downgrade to NEUTRAL recommendation.
810
-3 %
-19 %
EBIT Northern N.
493
487
682
758
1%
-10 %
96
106
157
117
-9 %
34 %
Key figures
2012
2013
2014
2015E
2016E
3Q14
4Q14
3Q15E
4Q15E
1 400
1 430
1 812
2 075
-2 %
-13 %
Group revenues
4 202
6 246
7 186
7 337
7 795
1 806
2 009
1 988
1 935
EBIT VAP/S&D
218
198
160
131
10 %
22 %
EBIT-elim/HQ
-65
-58
-62
-48
12 %
28 %
EBITDA
511
1 487
2 159
1 857
2 220
502
589
454
556
Group EBIT
1 552
1 570
1 911
2 158
-1 %
-11 %
EBIT (before IFRS adj.)
340
1 261
1 881
1 552
1 911
438
509
377
478
IFRS adj.
281
528
-232
-120
0
207
-128
0
0
94
158
96
56
78
10
31
14
20
PTP
611
2 324
1 631
1 397
1 897
619
388
368
476
EPS
4.2
15.8
10.5
9.1
12.4
4.0
2.6
2.4
3.1
EPS adj.
2.6
9.3
12.1
10.2
12.4
2.6
3.4
2.4
3.1
DPS payments
0.0
0.0
8.0
10.0
10.0
EBIT SALM (upstream )
974
Sea lice challenges persisting in Mid Norway
EBIT Central N. (upstream)
EBIT Salmar Rauma
838
Assosiates (Farming UK)
NIBD
Bent Rølland
Fondsfinans AS
TEL: +47 23 11 30 27
[email protected]
2 764
1 772
2 301
2 585
2 896
2 639
2 301
2 741
2 585
Central Norw ay
65 200
70 100
75 300
79 400
76 000
25 900
23 000
22 000
21 000
Northern Norw ay
22 300
23 800
37 600
41 800
46 000
8 200
13 800
11 000
12 500
Salmar Rauma
15 000
14 900
16 400
17 500
16 300
2 400
4 900
4 500
4 800
3 050
5 887
102 500
111 850
135 187
138 700
138 300
36 500
41 700
37 500
38 300
10 %
9%
21 %
3%
0%
5%
22 %
3%
-8 %
3.3
11.3
13.9
11.2
13.8
12.0
12.2
10.1
12.5
1.6
2.2
2.5
2.3
EV/ EBITDA
6.8
7.4
9.7
8.2
EV/EBIT, before adj.
8.1
8.5
11.6
9.6
P/ E adj
8.0
9.9
13.4
11.0
P/B
1.7
2.6
3.0
2.9
NIBD/kg
16
17
19
21
Villa Organic (51%)
Norw egian volum es
Volume grow th Y/Y
Philip M. Scrase
Fondsfinans AS
TEL: +47 23 11 30 23
[email protected]
EBIT (NOK/kg). All inclusive
EV/ Sales
SalMar ASA - 3Q15 Preview 6 October 2015
SalMar guidance and estimates
Annualised SALM
volumes & guidance
2015 volume guidance
of 139.0’t
Forced harvesting in
Region Mid lately. High
3Q volumes.
The table below sums up SalMar’s 2015 guidance, which was not changed at
2Q. SALM has lately going through forced harvesting in Region Mid due to sea
lice issues. Sites will be fallowed until next spring in order to clean the waters.
SALM volum e guidance Licenses
2013
2014
2015FF
Central Norw ay*)
59
HOG/lic
1 288
2015G
79 000
1H15G
31 600
1HY/Y
40 %
2H15G
47 400
70 100
75 300
79 400
76 000
5%
-4 %
Northern Norw ay***)
41
1 122
42 000
16 800
40 %
25 200
23 800
37 600
41 800
46 000 11 %
10 %
Salmar Rauma**
16
1 019
18 000
7 200
40 %
10 800
14 900
16 400
17 500
16 300
7%
-7 %
3 050
5 887
0
0
3%
0%
Villa Organic (2H13-1H14), 50%
SALM farm ing
116
1 198
139 000
SALM Y/Y - pf
UK farming (50%)
55 600
40 %
83 400 111 850 135 187 138 700 138 300
3%
37
15 500
SALM farm ing incl UK (50%)
2016FF 15/14 16/15
154 500
9%
21 %
3%
0%
13 400
13 769
14 545
14 600
6%
0%
125 250 148 956 153 245 152 900
3%
0%
*) Incl 9 rented licenses in Central Norw ay (VESO, SINTEF, Frøya vg..). 4 new green licenses added
**) Rauma, incl Bringsvor, Eikremsvik and Villa Miljølaks (organic salmon), incl 2 brood fish licenses
***) Villa Organic, Villa de-merged from 2H14 (incl in segment Northern Norw ay, 8 licenses). 4 new green licenses added
Green licenses (8 new licenses): 8 000 t capacity
Villa: Laksefjorden in Finnmark: Approx. 11 000 t HOG harvesting for 2017
The table below sums up our annualised SalMar estimates.
Assuming good farming
conditions and sound
bioligy in North
SalMar Vol (1 000 t HOG)
2008
2009
2010
2011
2012
2013
2014
2015E
2016E
SalMar Central Norw ay
42
50
47
64
65
70
75
79
76
SalMar Northern Norw ay
11
16
14
19
22
24
38
42
46
4
11
15
15
16
18
16
3
6
138
SalMar Rauma
Villa Organic (51%)
Biological challenges in
Central Norway and
Rauma continuing for
2H2015. Sites will be
fallowed
Central should be
better in 2016, but
volumes will probably
be reduced due to extra
fallowing
Harvesting Norw ay (t')
54
66
65
InnovaMar volumes (HOG eq.)
Norskott Havbruk (UK) - 50% - t'
93
103
112
135
139
79
100
128
130
128
122
11.4
13.2
13.6
11.0
13.6
13.4
13.8
14.5
14.6
7.6
10.1
15.6
7.2
3.5
13.2
12.6
10.2
12.8
2.9
5.5
15.4
5.7
3.7
13.5
12.7
11.8
14.8
SalMar Rauma
0.0
0.0
16.3
6.6
0.3
10.9
13.1
5.5
9.6
Sales & Processing (VAP)
0.0
0.0
0.0
0.0
0.5
-1.3
1.1
1.7
1.3
EBIT/kg (all inclusive)
6.3
8.9
15.0
6.4
3.3
11.3
13.9
11.2
13.8
Norskott Havbruk (50%)
2.5
6.3
10.3
5.3
2.1
6.7
8.4
6.8
9.1
322
507
734
458
226
924
946
810
974
32
86
211
106
83
320
477
493
682
67
72
5
162
215
96
157
55
164
1 812
SalMar EBIT (NOK/HOG)
SalMar EBIT (MNOK)
Salmar Rauma
Villa Organic (100%)
Farm ing EBIT
355
593
1 012
Sales & Processing (VAP)
EBIT Norw ay (all segm ents)
355
593
1 012
636
315
1 461
1 802
1 400
2
57
-161
138
218
160
638
372
1 300
1 940
1 617
1 972
EBIT eliminations
-15
-7
-37
-44
-31
-38
-59
-65
-62
Group EBIT
340
587
975
594
340
1 261
1 881
1 552
1 911
SalMar Revenues (MNOK)
2008
2009
2010
2011
2012
2013
2014
2015E
2016E
Farming revenues
1 977
2 739
3 901
4 664
3 820
4 525
5 616
5 464
6 231
2 230
4 232
6 047
6 847
6 998
6 769
S&P revenues
Group revenues
Eliminations
Farming volumes ('t)
1 714
2 377
3 429
3 829
4 202
6 246
7 186
7 337
7 795
-262
-362
-471
-3 065
-3 849
-4 326
-5 278
-5 125
-5 205
54
66
65
93
103
112
135
139
138
79
100
128
130
128
122
50
37
40
42
39
45
42
47
53
55
56
S&P volumes ('t)
Revenues farm ing (NOK/kg)
37
41
Revenues S&P (NOK/kg). N.r.
60
The table below sums up our quarterly SalMar estimates.
Page 40
5 October 2015
SalMar ASA
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15E
Group revenues
1 745
1 806
2 009
1 615
1 799
1 988
EBITDA
513
502
589
435
413
454
EBIT (before IFRS adj.)
448
438
509
361
336
377
377
Gain (BAKKA/Fish Pool)
70
EBIT ex gain
448
368
509
361
336
-128
207
-128
-60
-60
0
18
10
31
16
6
14
PTP
314
619
388
296
258
368
EPS adj.
2.89
2.63
3.40
2.45
2.20
2.40
IFRS adj.
Assosiates (Farming UK)
DPS (GM on 2 June)
Cost increase for 3Q
8
OpCF
NIBD
Farm ing volum es
50% on contract for 3Q
according to the
compay
723
-27
505
676
359
183
2 297
2 639
2 301
1 758
2 732
2 741
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15E
16 500
25 900
23 000
15 700
20 700
22 000
Northern Norw ay (incl Villa)
8 500
8 200
13 800
7 800
10 500
11 000
Salmar Rauma
5 000
2 400
4 900
4 500
3 700
4 500
Villa Organic (100%)*
5 074
35 074
36 500
41 700
28 000
34 900
37 500
4%
16 %
64 %
59 %
25 %
-15 %
SALM vol Y/Y pf
54 %
5%
22 %
1%
0%
3%
Segm ents
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15E
Central Norw ay
Norw egian volum es (t)
Mid-Norw ay vol. Y/Y
EBIT Central N. (upstream)
235
257
263
202
164
202
EBIT Northern N.
90
55
183
90
95
140
EBIT Salmar Rauma
78
29
43
42
20
5
EBIT Villa*
44
448
341
488
334
279
348
12
104
50
46
72
45
460
445
538
380
351
392
SALM upstream
EBIT VAP (InnovaMar)
EBIT segm ents
EBIT-elim/HQ
-12
-7
-29
-19
-15
-15
Group EBIT
448
438
509
361
336
377
EBIT/kg Central N.
14.2
9.9
11.4
12.9
7.9
9.2
EBIT/kg Northern N.
10.6
6.7
13.3
11.5
9.0
12.7
EBIT/kg Salmar Rauma
15.6
12.0
8.7
9.3
5.4
1.2
9.3
EBIT/kg Villa (incl in North)
8.8
EBIT/kg (upstream )
12.8
9.3
11.7
11.9
8.0
EBIT/kg (dow nstream)
0.7
4.0
2.2
2.9
3.5
2.0
12.8
12.0
12.2
12.9
9.6
10.1
OpCF/kg fish
20.6
-0.7
12.1
24.2
10.3
4.9
The table below sums up our SOTP valuation of SalMar: Target NOK 137 (140).
CapEx programme next
years: Green licenses
into production and new
smolt plant investments
2016 SOTP values of
NOK 137 (140) per
share
P/E 11 (10)
Salm ar ASA - Sum of the Parts
Licenses*
Capacity 2016 HOG HOG/license EBIT/HOG
59
82 600
76 000
1 288
12.8
41
53 300
46 000
1 122
14.8
SalMar Rauma
16
20 000
16 300
1 019
9.6
EV SALM Farm ing
116
155 900
138 300
1 192
13.1
VAP/S&D/HitraMat
140 000
121 900
1.31
EV Dow nstream
1.31
41
32 000
29 200
712
9.1
31.12.16E NIBD Scottish Sea Farms
EV Minority assets
167 500
HQ SalMar/eliminations
Total EV Group
157
167 500
NIBD 31.12.2016E
2016 dividend
Ow n shares (mill)
Equity values
Outs shares (mill)
SOTP values
Source: Fondsfinans Research *) 11 licenses rented, incl 8 new green licenses purchased, 8 Villa licenses
5 October 2015
EBIT
974
682
157
1 812
160
160
265
EV/EBIT
8.0
9.0
8.0
8.4
9.0
9.0
8.0
-62
1 911
8.4
9.0
EV/cap Im pl/kg
94
103
115
133
63
77
97
110
66.3
11
136
121
73
1.3
EV
7 792
6 134
1 254
15 179
1442
1 442
1 060
0
1 060
-516
17 165
2 896
1 133
177
15 579
113.3
137
(100%), 2 broodfish licenses
Page 41
Risk Assessments - Conditions in Region Mid not good for the moment,
but should be better if implementing zones and lowering the yield (less
moving of fish between the sites during the second summer)
factor. A change of +- NOK 1/kg in salmon price will on affect annual group EBIT
by around NOK 140m. Through its VAP division, SALM has, to certain extent,
cyclical downstream protection against potentially falling HOG farm gate prices.
Further, salmon prices around the world will from time to time differ from market
to market. In Europe, fish sales are primarily settled in EUR, while US and Asian
sales are normally settled in USD. The larger companies in the sector have EUR
and USD debt in order to hedge FX risks. SALM is financed in NOK.
Main risks in Region
Mid: Sea lice and AGD
Page 42
Fish diseases could always hit long term underlying values in fish farming. In the
Northern hemisphere, 2Q and 3Q is normally high season for potential fish
diseases. The risk increases in summer and in 3Q when the sea water
temperatures and the density in the cages peak.
5 October 2015
Buy
Neutral
Sell
Recommendation
Buy
Neutral
Sell
Total
Recommendation
Buy
Neutral
Sell
Total
No
45
9
12
66
Percent
68 %
14 %
18 %
100 %
No
3
0
0
3
Percent
7%
0%
0%
This report has not been sent to the companies for correction of any factual errors.
The recommendation has been changed from BUY to NEUTRAL. The previous recommendation was issued 25.08.15
Ownership per 28.09.15 in SalMar ASA:
0, corresponding to 0% of the company share capital.
Fondsfinans may hold shares in SalMar ASA as a result of daily trading/market making. Information on such holdings is not given when
of non-significant value.
Fondsfinans does not act as market maker in SalMar ASA.
DISCLAIMER
5 October 2015
Page 43
+ 23113027
Philip M. Scrase + 23113023
SalMar ASA
Sector:
Date:
Next result:
Target
Recommendation:
Aquaculture
25.aug.15
12.nov.15
137
NEUTRAL
136
Price (NOK):
42
Equity ratio:
47 %
147
12 months High/Low:138.0 / 95.7
P&L (NOKm)
2012
2013
Operating income
4 202
6 246
EBITDA
511
1 487
EBITDA-margin
12 %
24 %
EBIT before adj biomass
340
1 261
EBIT-margin
8%
20 %
Fair value adjustment of biomass
281
528
EBIT after adjustments
621
1 790
Associates (UK)
94
158
Other financial items
-35
215
Earnings before tax
611
2 324
Taxes
-125
-427
Result for the period
485
1 897
Minority share of result
14
105
Net adjustments
-181
-739
Net profit adjusted
290
1053
Outst. shares (mill)
113
113
EPS
4.16
15.82
EPS adj.
2.56
9.30
DPS (payment following year)
0.0
8.0
CEPS
1.5
9.8
Impl. cash flow per kilo fish
1.5
8.6
Multiples
EV/ Sales
EV/ EBITDA
P/ E adj
P/B
Norwegian farming volumes (HOG)
Region Mid (51 licenses)
65 200
70 100
Region North (23 licenses).
22 300
23 800
Rauma (16 licenses)
15 000
14 900
Villa Organic (51%)
3 050
Norwegian HOG volume
102 500 111 850
Volume growth Y/Y
10 %
9%
Region Mid (51 licenses)
3%
8%
Region North (23 licenses).
19 %
7%
Rauma (16 licenses)
38 %
-1 %
Sale/HOG volume (FOB Plant)
Central
39.4
38.5
North
31.0
38.3
Rauma
37.2
40.0
Impl price, All incl.
37.3
37.6
EBIT per segment (NOK m)
Region Midt
226
924
Region North
83
320
Rauma
5
162
Villa Organic (51%)
0
55
Sales and processing
57
-161
Segment EBIT
372
1 300
Farming EBIT margin (NOK/kg HOG)
Central
3.5
13.2
North
3.7
13.5
Rauma
0.3
10.9
All incl. EBIT/kg Norway (incl S&P
3.3
11.3
Sales and processing (VAP, InnovaMar & Vikenco)
Own HOG volumes
65 200
70 100
LSG Hydrotech HOG
23 400
20 600
Other external volumes
11 700
22 065
InnovaMar HOG volume
100 300 127 665
Downstream volumes,Y/Y %
28 %
27 %
EBIT (InnovaMar/Vikenco/sales)
55
-161
VAP/S&D EBIT/HOG-margin
0.55
-1.26
VAP share at InnovaMar,% (fillets)
15 %
12 %
UK farming (HOG) 50% ownership - Assosiates
Scottish Sea Farms (37 sites)
27 100
26 800
Sale/HOG volumes
34.6
41.2
Farming EBIT UK
56
179
EBIT-margin (NOK/kg)
2.1
6.7
EBIT Norskott (SALM Associate)
23
136
Elimination to EBIT bef. adj
-31
-38
Balance sheet (NOKm)
2012
2013
Total fixed assets
4 375
4 732
3 250
5 199
Total assets
7 625
9 931
Total equity
2 967
5 053
Total long-term liabilities
3 095
3 653
7 623
9 932
Equity share
39 %
51 %
NIBD
2 764
1 772
171
1 107
-428
331
Cash end period
56
1 072
2014
7 186
2 159
30 %
1 881
26 %
-232
1 648
96
-114
1 631
-413
1 217
23
180
1374
113
10.54
12.13
10.0
14.6
12.4
2015E
7 337
1 857
25 %
1 552
21 %
-120
1 432
56
-92
1 397
-366
1 031
0
120
1151
113
9.10
10.15
10.0
13.9
11.0
2016E
7 795
2 220
28 %
1 911
25 %
0
1 911
78
-92
1 897
-493
1 404
0
0
1404
113
12.39
12.39
10.0
14.4
11.8
2.2
7.4
8.5
9.9
2.6
2.5
9.7
11.6
13.4
3.0
2.3
8.2
9.6
11.0
2.9
75 300
37 600
16 400
5 887
135 187
21 %
7%
58 %
10 %
79 400
41 800
17 500
76 000
46 000
16 300
138 700
3%
5%
11 %
7%
38.0
38.4
47.7
37.6
Shares outst.:
Market cap (NOKm):
NIBD (MNOK):
113.3m
15 409
2 741
18 150
2Q14
1 745
513
29 %
448
26 %
-128
320
18
-25
314
-79
235
3
96
327
113
2.04
2.89
3Q14
1 806
502
28 %
438
24 %
207
645
10
-37
619
-164
455
4
-152
298
113
3.97
2.63
4Q14
2 009
589
29 %
509
25 %
-128
382
31
-25
388
-97
291
1
95
385
113
2.56
3.40
1Q15
1 615
435
27 %
361
22 %
-60
302
16
-22
296
-77
219
0
60
278
113
1.93
2.45
2Q15
1 799
413
23 %
336
19 %
-60
275
6
-24
258
-70
188
-1
60
249
113
1.66
2.20
3Q15E
1 988
454
23 %
377
19 %
0
377
14
-23
368
-96
272
0
0
272
113
2.40
2.40
4Q15E
1 935
556
29 %
478
25 %
0
478
20
-23
476
-124
352
0
0
352
113
3.11
3.11
6.4
20.6
-0.2
-0.7
4.5
12.1
6.0
24.1
3.2
10.3
1.6
4.9
3.2
9.4
138 300
0%
-4 %
10 %
-7 %
16 500
8 500
5 000
5 074
35 074
54 %
4%
204 %
22 %
25 900
8 200
2 400
0
36 500
5%
16 %
2%
-27 %
23 000
13 800
4 900
0
41 700
22 %
64 %
29 %
11 %
15 700
7 800
4 500
0
28 000
1%
59 %
10 %
10 %
20 700
10 500
3 700
0
34 900
0%
25 %
24 %
-26 %
22 000
11 000
4 500
0
37 500
3%
-15 %
34 %
88 %
21 000
12 500
4 800
0
38 300
-8 %
-9 %
-9 %
-2 %
38.5
40.0
42.2
39.4
44.3
46.1
45.6
45.1
40.2
37.1
47.9
34.7
35.1
32.6
50.4
35.6
36.6
38.4
44.0
38.0
39.2
39.2
45.8
40.3
36.1
36.9
41.9
36.9
38.2
41.2
39.2
39.2
40.5
42.0
42.0
41.2
946
477
215
164
138
1 940
810
493
96
0
218
1 617
974
682
157
0
160
1 972
235
90
78
44
12
460
257
55
29
0
104
445
263
183
43
0
50
538
202
90
42
0
46
380
164
95
20
0
72
351
202
140
5
0
45
392
242
169
29
0
55
494
12.6
12.7
13.1
13.9
10.2
11.8
5.5
11.2
12.8
14.8
9.6
13.8
14.2
10.6
15.6
12.8
9.9
6.7
12.0
12.0
11.4
13.3
8.7
12.2
12.9
11.5
9.3
12.9
7.9
9.0
5.4
9.6
9.2
12.7
1.2
10.1
11.5
13.5
6.0
12.5
75 300
24 100
15 900
129 600
2%
138
1.06
11 %
79 400
20 200
10 600
127 700
-1 %
218
1.70
11 %
76 000
20 000
9 600
121 900
-5 %
160
1.31
11 %
16 500
5 600
2 000
29 100
-3 %
12
0.41
12 %
25 900
6 000
5 400
39 700
11 %
104
2.62
9%
23 000
7 500
3 500
36 800
23 %
50
1.35
9%
15 700
5 200
3 400
28 800
20 %
46
1.60
12 %
20 700
5 000
2 400
31 800
9%
72
2.26
11 %
22 000
5 000
2 400
33 900
-15 %
45
1.32
10 %
21 000
5 000
2 400
33 200
-10 %
55
1.65
10 %
27 538
50.3
232
8.4
100
-59
2014
5 455
4 755
10 211
5 137
3 448
10 125
51 %
2 301
1 649
-1 032
168
29 089
54.1
198
6.8
56
-65
2015E
5 891
4 593
10 484
5 095
3 718
10 489
49 %
2 585
1 578
-651
256
29 200
53.8
265
9.1
78
-62
2016E
6 380
4 288
10 668
5 273
3 718
10 668
49 %
2 896
1 634
-720
-54
6 638
50.0
68
10.2
22
-12
No
1
2
3
4
5
6
7
8
9
10
8 400
53.0
50
6.0
14
-15
8 500
54.0
68
8.0
20
-15
Per cent
53.4%
7.4%
2.9%
1.8%
1.3%
1.3%
1.1%
0.7%
0.7%
0.6%
28.6%
100%
8 100
5 500
5 589
6 600
46.0
52.5
58.1
52.1
48
29
43
37
5.9
5.3
7.7
5.6
10
32
16
6
-7
-29
-19
-15
Shareholders (25.09.2015)
Shares (mill)
Kverva AS
60.50
Folketrygdfondet
8.43
State Street
3.30
LIN AS
2.01
Pareto Aksje Norge
1.47
Odin Norge
1.47
SalMar ASA
1.30
Mellon Bank
0.84
JPM Chase
0.84
State Street
0.73
OTHER SHAREHOLDERS
32.41
TOTAL SHAREHOLDERS
113.30
Grieg Seafood ASA
BUY
Share data (NOK m)
GSF
Sector
Aquaculture
Reuters/ Bloomberg
GSF
Risk rating
Medium
111.7
Market cap (mill)
3 127
NIBD (mill)
1 528
Enterprise value (mill)
4 655
Free float %
20 %
5
High/ low 52w
33.0 / 22.7
Weight OSEAX %
0.1457
00/ -01/ 01
-11/ -08/ -06
Estimate changes
Estim ate changes*
2016
2015E
Tonnes/MNOK
Curr
Prev
Curr
Prev
Revenues
2015
2016
4 669
4 567
4 971
4 769
2%
4%
EBITDA
432
503
919
864
-14 %
6%
EBIT
273
351
756
711
-22 %
6%
PTP
-18
160
662
641 -111 %
3%
1.80
2.09
4.36
4.17
-14 %
5%
6.62
7%
19 %
-1 %
28 %
EPS adj.*
EBIT/kg (HOG)
Farming Finnmark
6.17
11.63
Farming Rogaland
5.31
5.39
11.86
9.25
Farming Canada
2.03
5.19
9.67
11.24
9.76
-61 % -14 %
Share Price: NOK 29
Target: NOK 37 (36)
Pure spot price exposure in Europe
Growing conditions have improved in September. We estimate 17 300 t
harvesting for 3Q. The biomass in Rogaland is delayed this year due to low
summer sea water temperatures and 3Q harvesting from this region will be
moderate. For 4Q Rogaland harvesting should, however, pick up nicely. In
Finnmark high 3Q volumes should contribute positively to earnings. High
volumes will lead to a cost reduction. In total, we estimate 3Q EBIT of NOK
67m, up from NOK -63m last year. Based on higher spot prices and volumes
for 4Q, we calculate 4Q EBIT of 157m (up from NOK 140m last year).
At 2Q GSF indicated lower biological cost in Norway when turning to 2014G.
We agree. GSF has previously reported on significant organizational measures
taken to reduce biological risks. The new CEO, Mr. Andreas Kvame, “will
implement operative measures enabling the company to improve cost of
operation in all areas of the value chain”. Focus will be on biological risk
management and operations.
GSF has a high exposure to the spot market in Europe. For 2016 we believe
that spot prices could move well above contract prices, and GSF is set to gain.
We estimate 2015 and 2016 EPS adj. of NOK 2.15 (2.16) and 4.36 (4.23)
respectively. As GSF is one of few companies with significant spare capacity
and expects growth to continue, we keep an eye on EV/capacity and calculate
EV/cap of NOK 56/kg globally as a target level, corresponding to P/E (16) of
somewhat below 9 (8.5). Due to weaker NOK lately, we estimate SOTP values
of NOK 37 (36) per share and maintain our BUY recommendation.
Farming Shetland
0.23
1.32
7.54
8.14
-83 %
-7 %
Average farm ing m argin
3.74
4.67
10.33
9.46
-20 %
9%
Key figures (NOKm )
2010
2011
2012
2013
2014
2015E
2016E
3Q14
Farming Finnmark
19 732 20 832 22 000 22 000
-5 %
0%
Total revenues
2 456
2 064
2 078
2 425
2 739
4 702
4 993
599
766
1 133
1 364
Farming Rogaland
18 517 21 217 19 500 20 000
-13 %
-3 %
EBITDA
690
346
-30
484
482
432
919
-29
181
108
198
Farming Canada
13 896 13 246 13 000 12 600
5%
3%
Farming Shetland
17 794 15 794 17 800 19 000
13 %
-6 %
EBIT bef. adj.
570
206
-191
348
341
273
756
-63
140
67
157
Total farm ing volum es
69 939 71 089 72 300 73 600
-2 %
-2 %
IFRS biomass adj.
208
-395
98
267
-127
-221
0
-2
117
0
0
PTP
760
-193
-210
535
161
-18
662
-85
257
43
133
4Q14 3Q15E 4Q15E
Farm ing volum e (HOG)
Farm ing EBIT
Farming Finnmark
131
129
256
215
2%
19 %
Farming Rogaland
98
114
231
185
-14 %
25 %
EPS
4.78
-1.08
-1.32
3.86
1.24
-0.29
4.36
-0.58
1.87
0.27
0.87
Farming Canada
28
69
126
142
-59 % -11 %
EPS adj
2.86
1.40
-0.91
2.15
3.44
1.80
4.36
0.27
0.82
0.27
0.87
Farming Shetland
4
21
134
155
-81 % -13 %
DPS
1.35
0.00
0.00
0.00
0.00
0.50
0.50
261
332
747
696
-21 %
1 015
1 447
1 524
1 441
1 593
1 589
Farm ing EBIT
7%
NIBD
1 206
1 359
1 593
1 604
1 589
Farming Finnmark
20 705 16 143 20 080 23 076 26 470 19 732 22 000
6 933
5 804
6 500
6 900
Farming Rogaland
12 839 15 986 19 247 15 088 12 778 18 517 19 500
2 068
3 175
2 100
6 700
Farming Canada
13 682 13 236 13 576
6 257 13 896 13 000
2 899
620
4 000
2 300
Bent Rølland
Fondsfinans AS
TEL: +47 23 11 30 27
[email protected]
Farming Shetland
16 988 14 717 17 097 13 158 19 231 17 794 17 800
4 850
6 342
4 700
6 100
Philip M. Scrase
Fondsfinans AS
TEL: +47 23 11 30 23
[email protected]
EV/EBITDA
6 739
Total farm ing (tons) 64 214 60 082 70 000 58 061 64 736 69 939 72 300 16 750 15 941 17 300 22 000
Farming grow th Y/Y
EBIT/kg (all inclusive
28 %
-6 %
17 %
-17 %
11 %
8%
3%
20 %
0%
3%
38 %
9.3
3.4
-1.2
6.6
6.3
3.7
10.3
2.3
5.7
3.8
7.0
1.7
1.7
1.0
0.9
4.7
EV/Sales
8.6
9.8
10.9
EV/EBIT
12.0
13.8
17.3
5.7
P/E adj.
11.4
8.1
15.5
6.4
P/B
1.4
1.4
1.4
1.1
NIBD/kg fish
25
25
23
17
Grieg Seafood ASA - 3Q15 Preview 6 October 2015
GSF guidance, estimates and valuation
The tables below sum up the current GSF 2015 volume guidance which was
lowered by 2 000 t to 70 000 t HOG (+8% Y/Y) at 2Q15. Feeding in Norway is
delayed this year. We expect 4Q volumes to pick up vs. 3Q harvesting. GSF
should grow more than the industry on average and gain from tighter markets
Y/Y.
GSF volume profile:
2Q: -7% Y/Y
3QE:+3% Y/Y
4QE: +38% Y/Y
1Q16E: +35% Y/Y
Volum e guidance
2012
2013
2014
2015E
Grieg Seafood ASA
actual
actual
actual
FF
2016E
2015
Y/Y
Y/Y
Y/Y
FF Curr Guid
14/13
15/14
16/15
Farming Finnmark
20 080
23 076
26 470
19 732
22 000
Farming Rogaland
19 247
15 088
12 778
18 517
19 500
19 800
15 %
-25 %
11 %
18 500
-15 %
45 %
Farming Canada
13 576
6 739
6 257
13 896
5%
13 000
13 900
-7 %
122 %
-6 %
Farming Shetland
17 097
13 158
19 231
17 794
17 800
17 800
46 %
-7 %
0%
Total GSF volum es
70 000
58 061
64 736
69 939
72 300
70 000
11 %
8%
3%
GSF volum es
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15e
4Q15e
Farming Finnmark
7 958
6 933
5 804
5 042
1 290
6 500
6 900
5 500
-84 %
-6 %
19 %
9%
Farming Rogaland
5 397
2 068
3 175
2 761
6 956
2 100
6 700
5 000
29 %
2%
111 %
81 %
Farming Canada
1 685
2 899
620
1 840
5 756
4 000
2 300
3 500
242 %
38 %
271 %
90 %
Farming Shetland
3 910
4 850
6 342
3 438
3 556
4 700
6 100
3 600
-9 %
-3 %
-4 %
5%
18 950
16 750
15 941
13 081
17 558
17 300
22 000
17 600
-7 %
3%
38 %
35 %
Total GSF
1Q16e 2Q Y/Y 3Q Y/Y 4Q Y/Y 1Q Y/Y
UK value added
processing discontinued
for the time being
At 3Q14 the chairman, Mr. Per Grieg jr, stated that the company will increase
focus on its core activity; production of Atlantic salmon only (discontinuing Coho
in Canada at 3Q15; Finnmark trout was discontinued last summer) and
integrating its global sales organization, aiming to increase quality and
predictability of operational performance. In the UK, the company will focus on
HOG Atlantic salmon sales and stock larger smolt.
The new CEO, Mr. Andreas Kvame, appointed this summer “will implement
operative measures enabling the company to improve cost of operation in all
areas of the value chain”. Focus will be on biological risk management and
operations.
We believe that the new smolt investments should contribute to better 2014G
and 2015G performance than on 2013G. At Shetland local large smolt will, for
the first time, be stocked from 2H15 and should contribute to better performance
reducing cultivation risks. In Canada, the difficult Coho production will be
discontinued at 3Q15. The company will stock Atlantics from next year instead.
For 3Q15 we forecast break even numbers from the Canadian entities due to
weak Coho prices in particular.
The table below sums up annual farming volumes and earnings estimates
distributed by farming region (excluding overhead).
Page 46
5 October 2015
Fish feed prices falling
by around 0.5NOK/kg
from July, but will soon
increase again due to
negative FX effects
Rogaland: Zones
implemented by the
players (MHG; GSF,
Alsaker and Bremnes).
GSF key estim ates
2010
2011
2012
2013
2014
2015E
2016E
Farming Finnmark
10.44
3.43
-0.88
9.39
8.88
6.74
11.74
Farming Rogaland
10.20
6.52
2.64
9.60
9.14
5.88
9.74
Farming Canada
5.05
2.87
-2.38
-1.15
-3.64
4.35
9.75
Farming Shetland
10.51
0.40
-4.89
2.07
4.22
0.70
8.65
Average EBIT/kg
9.26
3.39
-1.18
6.56
6.33
4.50
10.06
Farm ing volum e
2010
2011
2012
2013
2014
2015E
2016E
Farming Finnmark
20 705
16 143
20 080
23 076
26 470
19 832
21 500
Farming Rogaland
12 839
15 986
19 247
15 088
12 778
18 517
19 700
Farming Canada
13 682
13 236
13 576
6 739
6 257
13 896
13 000
Farming Shetland
16 988
14 717
17 097
13 158
19 231
17 794
18 100
Total volum e
64 214
60 082
70 000
58 061
64 736
70 039
72 300
-6 %
17 %
-17 %
11 %
8%
3%
2010
2011
2012
2013
2014
2015E
2016E
Farming Finnmark
216 221
55 428
-17 675 216 749 234 938 133 640 252 500
Farming Rogaland
130 930 104 265
50 767 144 779 116 800 108 890 191 850
EBIT
Farming Canada
69 075
38 028
-32 243
-7 757
-22 782
60 400 126 700
Farming Shetland
178 624
5 865
-83 667
27 251
81 117
12 530 156 500
Farm ing EBIT*
594 850 203 586
HQ/non-control int.
-24 823
Group Op EBIT
570 027 205 609 -191 161 348 293 340 960 327 468 737 071
-82 818 381 022 410 073 315 460 727 550
2 023 -108 343
-32 729
-69 113
12 008
9 521
Source: Fondsfinans Research *) before HQ/non-controlling int.
Rogaland: PD
harvesting during 2Q
Finnmark volumes
picking up again,
lowering cost/kg from
3q
Finnmark HOG plant
into harvesting from
mid- July this year and
should contribute
positively vs. last year
The table below provides quarterly farming volumes and EBIT/kg margin
estimates by farming region for the next two quarters.
Key figures (NOKm )
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15*
2Q15*
3Q15*
4Q15*
Total revenues
689
621
749
599
697
1 023
1 149
1 133
1 364
EBITDA
122
173
157
-29
181
108
19
108
198
87
28
140
29
124
0
-63
93
140
-41
70
-21
-12
67
157
EBIT, ex w rite dow ns
115
169
124
30
99
70
-9
67
157
IFRS biomass adj.
174
-47
-196
-2
117
-113
-108
0
0
PTP
244
72
-83
-85
257
-67
-128
43
133
EPS
1.93
0.51
-0.56
-0.58
1.87
-0.50
-0.92
0.27
0.87
EPS adj
0.73
1.16
1.19
0.27
0.82
0.51
0.16
0.27
0.87
1 441
1 374
1 296
1 359
1 593
1 618
1 528
1 604
1 589
Op. cash flow
-76
130
120
26
-83
119
74
31
121
Farm ing volum es
Vol
Vol
Vol
Vol
Vol
Vol
Vol
Vol
Vol
Farming Finnmark
5 735
5 775
7 958
6 933
5 804
5 042
1 290
6 500
6 900
Farming Rogaland
2 617
2 138
5 397
2 068
3 175
2 761
6 956
2 100
6 700
878
1 053
1 685
2 899
620
1 840
5 756
4 000
2 300
6 765
4 129
3 910
4 850
6 342
3 438
3 556
4 700
6 100
15 995
13 095
18 950
16 750
15 941
13 081
17 558
17 300
22 000
-21 %
-5 %
32 %
20 %
0%
0%
-7 %
3%
38 %
EBIT
EBIT
EBIT
EBIT
EBIT
EBIT
EBIT
EBIT
EBIT
Finnmark
50
92
77
28
38
24
-5
47
64
Rogaland
18
20
55
16
26
16
22
8
52
EBIT bef IFRS
One off, mortality in Canada
NIBD
Farming Canada
Farming Shetland
Total farm ing (HOG tons)
Volumes Y/Y
Segm ents
Remaining Coho
harvesting in Canada at
3q should lead to breakeven levels
Canada
-12
-6
-9
-9
0
13
5
-1
11
Shetland
43
42
9
4
26
11
-44
11
26
154
Op EBIT
HQ/non-controll int.
Group EBIT (ex IFRS)
Segm ents
99
148
132
39
90
65
-22
65
-12
-8
-8
-102
50
5
1
2
3
87
140
124
-63
140
70
-21
67
157
EBIT/kg
EBIT/kg
EBIT/kg
EBIT/kg
EBIT/kg
EBIT/kg
EBIT/kg
EBIT/kg
EBIT/kg
Finnmark
8.8
15.9
9.7
4.0
6.6
4.7
-3.6
7.3
9.3
Rogaland
7.0
9.5
10.2
7.6
8.1
5.9
3.1
3.8
7.8
-13.4
-5.4
-5.1
-3.0
0.2
7.2
0.9
-0.3
4.8
Shetland
6.3
10.1
2.3
0.9
4.2
3.3
-12.5
2.3
4.3
Group EBIT/kg
5.4
10.7
6.5
2.3
5.7
5.4
-1.2
3.9
7.1
Canada
*)The sales company, Ocean Quality AS, consolidated (60% in Norway), 100% abroad
5 October 2015
Page 47
Grieg Seafoo
od ASA - 3Q15
5 Preview 6 October
O
2015
GSF fin
nancials – High CAPEX in 20
014 and 20015: Catch
hing up +
develop
ping new green Finnmark lice
enses
2015 CAPE
EX guidance
of NOK 320
0m (down
from 350m ffor 2014
where Gove
ernmental
NOK 40m p
payments forr
the green liccenses were
e
included
4 new green
n licenses in
Finnmark: n
new nets,
feeding plattform etc.
coming on-sstream in
2015 – Firstt stocking
from 2H15
Maintenancce capex
NOK 160m.. 2016 capexx
likely to be ssomewhat
above main
ntenance
In addition tto the
CAPEX, GS
SF guides on
n
NOK 150m NWC buildup during 2H
H15 due to
increased b
biomass in
the sea and
d +3%
volumes forr 2016
Ocean Quality factoring
of NOK 155
5m now
included in NIBD, but
not in coven
nant
calculationss
Group finan
ncials:
Revolver un
ndrawn with
NOK 850m at 2Q +
NOK 240m cash – NOK
K
400m bond maturing in
December lleaving NOK
K
690 as free liquidity
nancing:
2Q Refin
On 15 Ju
uly GSF repo
orted extending its bank credit
c
facility by NOK 500
0m from
NOK 1 410m to NOK
K 1 910m. This has been done in ordeer to refinanc
ce a bond
loan of NOK 400m, w
which matures in Decemb
ber 2015.
The bank
k covenant re
equirements are unchang
ged. Danskee Bank has withdrawn
w
from the bank syndica
ate, and DNB
B has entere
ed it. The synndicate is thu
us made up
of Nordea
a and DNB.
The finan
ncial covenan
nts state thatt the equity should
s
be mi nimum 35% and
NIBD/EBITDA must b
be under 4.5. Given equitty higher tha n 40%, NIBD
D/EBITDA
can to be
e up to 5.0. N
NIBD/EBITDA
A can also be
e up to 6.0 foor three quarrters.
As of 2Q15 Ocean Q uality is fully consolidated
d in the GSF
F balance she
eet,
including factoring. H owever, thes
se numbers are
a not inclu ded in the ba
ank
covenantt calculationss (i.e. NIBD minus
m
factoring).
Grieg Seafood ASA
A
EBITDA
EBITDA 4Q rollingg
Equity
NIBD (ex. factoring)
Gross bank and bond
b
debt
NIBD per kg fish
h harvested
Cash end period
NIBD/4Q roll. EBIITDA
NIBD/EBITDA covvenant
NIBD/NWC <1.5 (discontinued)
Equity ratio > 35%
% > 40%
4Q13
122
484
1 989
1 441
1 605
25
164
3.0
waived
0.9
43 %
1Q14
173
572
2 024
1 374
1 648
20
273
2.4
4.5
0.8
44 %
22Q14
157
561
2 001
1 296
1 503
19
207
2.3
4.5
0.9
4 %
45
3Q14
-29
422
1 935
1 359
1 482
19
124
3.2
5.0
0.9
44 %
4Q14
181
482
2 222
1 593
1 737
23
144
3.3
5.0
0.9
44 %
1Q15
108
417
2 200
1 618
1 819
23
201
3.9
5.0
2Q15 3Q15E
E 4Q15E 1Q16E 2Q
Q16E
228
19
1088
198
256
789
279
4166
432
581
2 056 2 1000
2 236 2 429
2 538
1 528 1 6044
1 589 1 437
1 368
1 769 1 7466
1 724 1 701
1 679
19
22
233
23
20
311
240
1422
134
264
1.7
5.5
3.99
3.7
2.5
5.0
5.0
5.00
5.0
5.0
41 %
38 %
39 %
40 %
43 %
4 %
44
Source: FF Researrch. *)Company refinanced during 2Q15, NIBD/EBI TDA can b e max. 6 for 3 quarters
q
in a row. Bank covv. ex. factoring debt (NOK 280m)
Given equity ratio above
a
40%, NIBD/EBITDA
A can be at max. 5. Equityy ratio for b ank purposes ex
e Ocean Quality
Existing b ank deb t syndicate: Nordea and DNB:
D
Remaining term loann (NOK 810m), Repaymennt: (NOK 22.5m per quarterr), Revolver: NOK 1.1b. Upp from NOK 600m
Duration on new b ank syndikate: 5 years. 20014-2019.
N
400m. Duration: 3 yeears. Dec 2012-Dec 2015. 700 bp above NIBOR 3m
mnd
Unsecured bond: NOK
Revolver credit: NO
OK 850m undrawn at 2Q15. Free liquidity of NOK 7000m at 2Q15 (850m-400m
m+240m)
Page 48
5 October 2015
Fondsfina
ans Research
h
Grieg Seafoo
od ASA - 3Q155 Preview 6 October
O
2015
5
NOK 400 bo
ond maturityy
in Decembe
er 2015 Refinanced
d
Bank syndiccate running
for five yearrs from
2Q14, four yyears
remaining
Source: Griieg Seafood AS
SA
2016 GSF SOTP valuation – NOK 37
7 (36) per share
TP valuation is based on
n a bottom-up approach where each
h production
Our SOT
and business unit is valued sepa
arately base
ed on updateed market outlooks and
updated regional cult ivation risks..
2016 SOTP
P target: NOK
K
37 (36) per share
GSF is one
o of the few
w companies with significant free farrming capac
city, and our
SOTP tarrget also corrresponds with EV/capacity of NOK 556/kg. Longer term, GSF
will be able
a
to move
e beyond 20
016 volumes
s given new
w investmentts in smolt,
cages an
nd feeding pla
atforms.
We calcu
ulate GSF va
alues of NOK 37 (36) pe
er share that
at also corres
sponds with
P/E (16) of somewha t below 9x (8
8.5). We maintain our BU
UY recommendation.
Target levell equal to
P/E (16) clo
ose to 9
2016 SOTP
Smolt cap. EBIT EBIT/kg Volume Capacity
C
EV/cap EV
V/EBIT Impl. EV/kg
Grieg Seafood ASA
mill.
2016
2016
2016
2016
2016
HOG/t
target
Norway, Finnmaark - 32 licences
7.0
256
7.0
81
11.6 22 000 33 000
55
7.5
89
11.9 19 500 23 000
75
Norw: Rogaland, 20 licences incl R&D
D
3.0
231
7.0
70
9.7
13 000 17 500
52
Canada (21 liceences)
3.0
126
7.0
53
7.5
17 800 22 500
42
UK/Shetland (411 licences)
5.0
134
7.2
74
10.3 72 300 96 000
56
Total farming (114
(
lisenses)
18
747
7.2
HQ/overhead
10
10
Total Group EV
33 %
96 000
55
V
756
NIBD 31.12.2016E
17
0.55
111.7
Dividends not paaid (2016)
Own shares (1.225m)
Equity value
Outst. shares
SOTP target peer share
Source: Fondsfiinans Research, *) ex new
n green licenses in Finnmark,
F
incl broodfissh licenses in Rogaland
EV
Output
Target per lic*
1 790
786
1 734
975
910
619
940
434
5 375
689
-72
5 303
1 206
56
35
4 187
111.7
37
Risk ass
sessmen
nt – Biolo
ogical ris
sks and fish
f
heallth consiideration
ns
PD in Rogaland in 1H
Satisfactoryy biological
developmen
nts in
Finnmark
The sens
sitivity of GS
SF estimates
s to key assu
umptions is very high. A change of
NOK 1 pe
er kilo in salm
mon price sh
hould represe
ent an annuaal EBIT and CF effect of
around NOK
N
75m. G
GSF has incrreased CAPE
EX guidancee and will ma
aintain as a
geared company.
c
GS
SF bank debt is NOK based.
b
Stronnger USD an
nd EUR vs.
NOK is positive for th
he company.
Potential fish diseasse outbreak
ks could always hit u nderlying earning and
cal values in fish farming
g. GSF is how
wever, diverssified through
h four major
region/loc
farming clusters
c
in ttotally differe
ent geographical regionss, and the company
c
is
therefore to a certain
n degree hed
dged with re
egard to poteential local/rregional fish
disease outbreaks.
o
G
GSF has rep
ported on sig
gnificant biollogical impro
ovements in
the UK, but
b cost per kkilo is still hig
gh due to acttive sea lice ttreatments.
Further, the
t summerr is as alway
ys high risk season for ffish diseases
s in the UK
and Norw
way. The ma
ain biological risks in the
ese regions are AGD/PG
GD, PD and
sea lice during 2Q a
and 3Q. Fee
ed factor las
st summer w
was high as
s sea water
5 October 2015
Page 49
9
Gill disease in the UK
last year, but zones at
the Shetland Islands
should help conditions
temperatures were record high. This year 2Q feeding is down Y/Y due to colder
waters.
Following the 2012 furunculosis outbreak at the Golden River fresh water smolt
facility in Canada, a number of actions and improvements have been
implemented to minimize the risk of similar disease outbreaks in the future. At 4Q
the company reported that sea water production in Canada is developing better
than planned. The smolt production at the Golden River recirculation plant was
according to plan. Further, low dissolved oxygen levels are another core
cultivation risk in Canada.
PGD: Proliferative (“Hamburger”) Gill Disease: Normally a spring disease.
Aggressive parasite. High mortality could occur. Penetrates and infect gill tissue.
Page 50
5 October 2015
Buy
Neutral
Sell
Recommendation
Buy
Neutral
Sell
Total
Recommendation
Buy
Neutral
Sell
Total
No
45
9
12
66
Percent
68 %
14 %
18 %
100 %
No
3
0
0
3
Percent
7%
0%
0%
The recommendation has not been changed from BUY. The previous recommendation was issued 19.08.15
Ownership per 28.09.15 in Grieg Seafood ASA:
2.000, corresponding to 0% of the company share capital
275.000, corresponding to 0% of the company share capital.
Fondsfinans may hold shares in Grieg Seafood ASA as a result of daily trading/market making. Information on such holdings is not
Fondsfinans is acting as market maker in Grieg Seafood ASA.
DISCLAIMER
5 October 2015
Page 51
Grieg Seafood ASA (Ocean Quality; 2015 consolidated, 60%)
Sector:
Date:
Next result:
Target
Recommendation:
P&L (MNOK)
Aquaculture
06.okt.15
06.nov.15
37
BUY
Operation income
Associates/joint ventures
EBITDA
EBITDA-margin
Depreciation and amortisation
EBIT bef. adj.
EBIT-margin
IFRS biomass adjustments
EBIT (operation profit)
Assosiates (Salten Stamfisk AS)
Net financial items
Net agio/Derivatives
PTP
Calc. Tax
Net profit
Minority share
Mother company
Adjustments:
Biomass adjustments
Asset write downs
Net adjustments
NIBD
No of outst shares (mill)
EPS
EPS adj
CEPS
DPS
Multiples
EV/Sales
EV/EBITDA
EV/EBIT
P/E adj.
P/B
Farming Finnmark
Farming Rogaland
Farming Canada
Farming Shetland
Total farming volume
EBIT per kilo (incl Ocean Quality)
Farming Finnmark
Farming Rogaland
Farming Canada
Farming Shetland
EBIT (NOK/HOG)
Cash flow/kg fish harvested
Farming EBIT (incl Ocean Quality)
Farming Finnmark
Farming Rogaland
Farming Canada
Farming Shetland
Farming EBIT (NOK m)
Ocean Quality / HQ
Group EBIT
Balance sheet (NOKm)
Total assets
Total equity
Total non-current liabilities
Total current liabilities
Equity ratio (covenant 35%)
Return on equity
NIBD
+ 23113027
Shares outst.: 111.7m
Market cap (NOKm):
3 127
1 528
Enterprise value (NOKm):
4 655
OSEAX:
0.146
28.0
Price (NOK):
18.4
Equity ratio:
38 %
5
12 months High/Low: 33.0 / 22.7
2012
2 078
13
-30
-1 %
161
-191
-9 %
98
-93
-1
-116
7
-210
55
-147
0
-147
2013
2 425
6
484
20 %
136
348
14 %
267
616
2
-83
10
535
-114
431
0
431
2014
2 739
10
482
18 %
141
341
12 %
-127
214
3
-55
-1
161
-23
138
0
138
2015E
4 702
13
432
9%
159
273
6%
-221
52
4
-75
0
-18
-2
-20
12
-32
2016E
4 993
10
919
18 %
162
756
15 %
0
756
4
-98
0
662
-166
497
10
487
3Q14
599
5
-29
-5 %
34
-63
-11 %
-2
-65
0
-20
0
-85
20
-65
0
-65
4Q14
766
2
181
24 %
41
140
18 %
117
257
0
0
0
257
-48
209
0
209
1Q15
1 034
6
108
10 %
38
70
7%
-113
-43
1
-25
0
-67
16
-51
5
-56
2Q15E
1 171
2
19
2%
40
-21
-2 %
-108
-129
1
0
0
-128
26
-101
1
-103
3Q15E
1 133
2
108
10 %
41
67
6%
0
67
1
-25
0
43
-11
32
2
30
4Q15E
1 364
3
198
14 %
41
157
12 %
0
157
1
-25
0
133
-33
100
3
97
1Q16E
1 254
2
256
20 %
41
216
17 %
0
216
1
-25
0
192
-48
144
2
142
98
-124
-46
-101
1 524
111.7
-1.32
-0.91
1.84
0.00
267
-31
191
240
1 441
111.7
3.86
2.15
2.84
0.00
-127
-119
-246
384
1 593
111.7
1.24
3.44
1.73
0.00
-221
-12
-233
201
1 589
111.7
-0.29
1.80
3.10
0.50
0
0
0
487
1 206
111.7
4.36
4.36
6.96
0.50
-2
-93
-95
30
1 359
111.7
-0.58
0.27
0.23
117
0
117
92
1 593
111.7
1.87
0.82
-0.75
-113
0
-113
56
1 618
111.7
-0.50
0.51
1.07
-108
-12
-120
18
1 528
111.7
-0.92
0.16
0.66
0
0
0
30
1 604
111.7
0.27
0.27
0.28
0
0
0
97
1 589
111.7
0.87
0.87
1.09
0
0
0
142
1 437
111.7
1.27
1.27
2.12
1.7
9.8
13.8
8.1
1.4
1.0
10.9
17.3
15.5
1.4
0.9
4.7
5.7
6.4
1.1
20 080
19 247
13 576
17 097
70 000
23 076
15 088
6 739
13 158
58 061
26 470
12 778
6 257
19 231
64 736
19 732
18 517
13 896
17 794
69 939
22 000
19 500
13 000
17 800
72 300
6 933
2 068
2 899
4 850
16 750
5 804
3 175
620
6 342
15 941
5 042
2 761
1 840
3 438
13 081
1 290
6 956
5 756
3 556
17 558
6 500
2 100
4 000
4 700
17 300
6 900
6 700
2 300
6 100
22 000
5 500
5 000
3 500
3 600
17 600
-0.9
2.6
-2.4
-4.9
-1.2
2.9
9.4
9.6
-1.2
2.1
6.6
5.5
8.9
9.1
-3.6
4.2
6.3
3.0
6.6
5.3
2.0
0.2
3.7
4.9
11.6
11.9
9.7
7.5
10.3
10.7
4.0
7.6
-3.0
0.9
2.3
1.5
6.6
8.1
0.2
4.2
5.7
-5.2
4.7
5.9
7.2
3.3
4.9
9.1
-3.6
3.1
0.9
-12.5
-1.3
4.2
7.3
3.8
-0.3
2.3
3.8
1.8
9.3
7.8
4.8
4.3
7.0
5.5
13.5
13.0
11.5
9.5
12.1
13.4
-18
51
-32
-84
217
145
-8
27
235
117
-23
81
131
98
28
4
256
231
126
134
28
16
-9
4
38
26
0
26
24
16
13
11
-5
22
5
-44
47
8
-1
11
64
52
11
26
74
65
40
34
214
-83
381
410
261
747
39
90
65
-22
65
154
-108
-33
-69
12
10
-102
50
5
1
2
3
2
-191
2012
2 279
4 070
1 508
1 575
988
4 070
38 %
-6 %
1 524
205
-190
74
348
2013
2 354
4 591
1 989
1 614
988
4 591
44 %
14 %
1 441
317
-146
-249
341
2014
2 654
5 042
2 222
1 781
1 039
5 042
45 %
18 %
1 593
193
-271
49
273
2015E
2 822
5 522
2 236
1 703
1 583
5 522
41 %
9%
1 589
346
-321
-76
70
-21
67
Number of shares
55 801 409
22 198 000
6 605 998
6 559 309
2 928 197
2 610 000
1 305 901
1 250 000
1 000 000
824 565
5 155 976
157
216
25.09.2015
50.0%
19.9%
5.9%
5.9%
2.6%
2.3%
1.2%
1.1%
0.9%
0.7%
4.6%
100%
756
-63
140
2016E Largest shareholders
2 919 Grieg Holdings AS
5 986 DNB NOR, Markets
2 848 Nordea Bank, Markets
1 555 Kontrari AS
1 583 Ystholmen AS
5 985 OM Holding AS
48 % State Street Bank, nom
19 % Grieg Seafood ASA
1 206 Kvasshøgdi AS
777 Grieg Shipping II AS
-240 OTHER SHAREHOLDERS
-244 TOTAL SHAREHOLDERS
111 662 000
P/F Bakkafrost
NEUTRAL
Share data (NOK m)
BAKKA
Sector
Aquaculture
Reuters/ Bloomberg
BAKKA
Risk rating
Medium
48.9
Market cap (NOK)
8 306
NIBD (NOK)
290
Enterprise value (NOK)
8 596
Free float %
81 %
184.83
High/ low 52w
260.0 / 126.0
Weight OSEAX %
0.4855
28/ 60/ 86
16/ 54/ 80
Estim ate changes
2015E
2016E
DKK
Curr
Prev
Curr
Prev
2015
2016
Revenues
2 733
2 772
2 649
2 709
-1 %
-2 %
EBITDA
1 154
1 246
1 149
1 194
-7 %
-4 %
EBIT
1 048
1 140
1 040
1 085
-8 %
-4 %
PTP
911
1 005
1 042
1 090
-9 %
-4 %
20.8
20.59
21.19
EPS adj. (NOK)
19.27
-7 %
-3 %
Farming North
20.4
20.9
22.0
22.6
-2 %
-3 %
West/Viking
21.2
21.7
22.0
22.6
-2 %
-3 %
Av. farm ing m argin
20.71
21.22
21.98
22.60
-2 %
-3 %
Farming North (t)
30 222
30 241
26 000
26 000
0%
0%
West/Viking (t)
19 686
19 685
25 000
25 000
0%
Upstream volum es (t)
Farm ing volum es
0%
49 908
49 926
51 000
51 000
0%
0%
EBIT Farming
914
936
991
1 019
-2 %
-3 %
EBIT feed (Havsbrun)
183
225
142
108
-19 %
31 %
Feed volum es (t)
75 775
75 755
78 523
78 523
VAP volum es (t)
17 644
17 644
16 762
16 762
0%
0%
70
99
27
77
-29 %
-65 %
VAP EBIT
0%
0%
Elim. EBIT/HQ
-120
-120
-120
-210
n.m.
-43 %
Group EBIT
1 048
1 140
1 040
1 085
-8 %
-4 %
Bent Rølland
Fondsfinans AS
TEL: +47 23 11 30 27
[email protected]
Philip M. Scrase
Fondsfinans AS
TEL: +47 23 11 30 23
[email protected]
Russia sales gain continuing – Cost on 2014G
probably somewhat up
At 2Q BAKKA reported above 50% of the fresh fish sales towards Eastern
Europe (Russia). BAKKA has maintained its attractive position in the high end
Russian sales as long as Norwegian and UK players are banned from this
attractive market. We expect BAKKA to continue to gain from its Russian
operations and forecast another quarter with strong earnings. However, the
RUBDKK ratio is down for 3Q vs. 2Q and the price achieved in DKK should be
somewhat lower. Within feed, BAKKA should continue to gain from securing
attractive pelagic raw materials in 2Q up-front of the high feeding season.
Lately raw material prices have started to climb again due to sign of El Niño,
leaving BAKKA in a temporarily good position.
At 2Q BAKKA maintained its guidance of 2015 stocking of 10.4 mill individuals
(stable Y/Y) and we forecast around 51 000 t HOG for 2016. Further, the 450 t
closed well boat arrived Faroe Islands at 2Q and will support operations in 3Q
onwards together with the new HOG/VAP plant in Glyvrar into operations from
2016 replacing 7 current plants. The new plant will have rental customers. The
many investments in the value chain should gradually improve performance
through the value chain and we conclude strong 2016 performance.
We have adjusted our estimates measured in NOK marginally downwards. We
conclude 2015 and 2016 EPS adj. equal to NOK 19.3 (20.8) and NOK 20.6
(21.2). We update our SOTP values from NOK 256 to NOK 260, which also
corresponds to P/E (2016) of around 12 (12). We have added intrinsic values
on the new well boat (the old ones will probably be sold). We maintain high
multiple due to integrated structure in the value chain and because Russia has
prolonged the European food ban (which is not in force for Faroe Islands
producers). We conclude BAKKA as fair value of NOK 260 per share.
corresponding to EV/cap of NOK 87 and P/E16 of somewhat above 11x (11).
Key figures (DKKm)
Total revenues
EBITDA
EBIT bef. adj.
IFRS biomass adj.
PTP
EPS adj (DKK)
EPS adj (NOK)
DKKNOK
DPS (NOK), 50%
NIBD (DKK)
Farming North
West/Viking
BAKKA farming (t)
Farming growth Y/Y
Havsbrun feed (t)
Internal feed growth Y/Y
VAP volumes
External HOG sales
EBIT/kg (all incl DKK)
EV/Sales
EV/EBITDA
EV/EBIT
P/E adj.
P/B
2011
1 321
402
335
-47
245
5.7
6.0
105
4.2
817
20 160
7 052
31 774
28 %
87 293
12 824
-1 %
23 545
8.9
2012
1 856
403
323
91
323
5.3
5.3
100
1.0
807
23 533
19 075
44 341
40 %
91 398
-7 %
16 054
25 %
28 579
6.2
2013
2 491
674
587
115
730
10.6
10.6
100
2.1
603
29 203
12 065
41 268
-7 %
85 333
4%
18 333
14 %
22 935
13.6
2014
2 683
931
834
-12
899
12.2
13.6
111
4.8
200
25 671
18 342
44 013
7%
85 724
7%
19 943
9%
24 070
18.9
2.9
8.2
8.5
12.5
3.6
2015E
2 733
1 154
1 048
-93
911
16.0
19.3
120
6.5
112
30 222
19 686
49 908
13 %
75 775
-1 %
17 644
-12 %
32 264
21.0
4.1
9.7
10.7
14.1
4.2
2016E
3Q14
2 649
584
1 149
233
1 040
209
0
60
1 042
255
16.2
3.3
20.6
3.7
127
111
8.7
205
315
26 000
9 848
25 000
1 033
51 000 10 881
2%
-4 %
78 523 29 808
2%
0%
16 762
4 250
-5 %
1%
34 238
6 631
20.4
19.2
4.0
9.3
10.3
13.2
3.3
4Q14
757
255
227
52
314
3.8
4.4
116
2Q15E
800
330
303
-38
237
4.5
5.2
115
3Q15E
678
282
256
0
256
4.0
4.9
122
4Q15E
643
281
254
0
252
3.9
5.0
127
200
7 628
5 023
12 651
14 %
23 133
30 %
4 700
-7 %
7 951
18.0
253
11 681
2 501
14 182
26 %
17 657
5%
5 064
-15 %
9 118
21.4
183
8 000
5 000
13 000
19 %
23 000
-15 %
3 825
-10 %
9 175
19.7
112
8 000
5 000
13 000
3%
20 718
0%
4 230
-10 %
8 770
19.5
P/F Bakkafro
ost - 3Q15 Pre
eview 6 Octobe
er 2015
BAKKA stocking
g guidan
nce for 20
015 – 10.4 mill in
ndividualls , stable Y/Y
Gradually in
ncreasing
internal smo
olt capacity
New BAKKA
A well boat
into 3Q ope
erations
450 t bioma
ass capacity
Capable of delousing
king Y/Y
Stable BAKKA stock
BAKKA maintained
m
itts guidance of
o 10.4m sto
ocking for 20015, which is stable Y/Y.
The new
w DKK 55m 2m capacitty (100g) sm
molt plant thhat was com
mpleted last
summer, should impl y somewhatt larger smolt stocking foor 2015 on average. We
forecast 2016
2
volume
es slightly up
p Y/Y. Accorrding to BAK
KKA, the new
w smolt plant
increases
s the compan
ny’s internal smolt capac
city, longer teerm, by aroun
nd 30%.
The smolt yield is bettter at Faroe than in Norw
way becausee of the absence of MAB
F
Islandss. The sea water sites are also onn average la
arger. Faroe
at The Faroe
Islands has
h
less striict sea lice rules than Norway.
N
De lousing the cages only
occurs when
w
the num
mber of fema
ale sea lice is
i above 2 pper fish (0.5 in Norway).
The BAK
KKA goal is, within 3 yea
ars, to increa
ase smolt sizze up to 300 g. The sea
water tim
me exposure
e will then be
b reduced to around 114 months (18 months
today).
Smolt transffer ('000)
Farming Nortth (8)
Farming Wesst (0), trout
Farming Wesst, Salmon (7)
Viking Farming (2)
Faroe Farmin
ng (3)
Bakkafrost p.f.
p
Smolt Y/Y pf.
p
BAKKA (ex Faroe F)
Smolt Y/Y a dj.
Adj Dec11/Ja
an12 delay (West)
Y/Y smolt releases
2007
3 500
800
1 200
0
0
5 500
200
08
3 20
00
70
00
1 40
00
0
0
5 30
00
5 500
5 30
00
-4 %
2009
4 000
300
2 100
850
850
8 100
53 %
7 250
37 %
7 250
20
010
4 100
1
2011
5 000
2012
6 500
2013
7 200
2014
3 000
2015G
6 600
4 100
1
1 400
4
1 400
4
11 000
0
36
6%
9 600
6
32
2%
9 600
6
32
2%
2 600
500
500
8 600
-22 %
8 100
-16 %
8 700
-9 %
4 200
2 300
7 400
3 800
10
0 700
2 %
24
10
0 700
32 %
10
0 100
1 %
16
9 500
-11 %
9 500
-11 %
10 100
0%
1 400
10
9%
1 400
10
9%
10 400
3%
10 400
0%
10 400
0%
10 400
0%
Company guidance:: 50 000 t HO
OG for 2015
5. We consid
der this to be fair.
Guidanc
ce (pro forma
a)
HOG volumes
2011
2012
20
013
2014
2015E
201
16E
2015
guiding
2
25 671 30 222 26 000
0
20 160 23 533 29 203
7 052 19 075 12 065
0
18 342 19 686 25 0
000
4 562 1 733
31 774 44 341 41 268
2
44 013 49 908 51 000
0
50 000
40 %
-7
7%
7%
13 %
2%
14 %
28 %
Farming North
N
Farming West
W
Viking Sea
afood p.f.
Bakkafro
ost pf
Volume g rowth Y/Y
Updated BAKKA vo lumes and estimates
e
The table
es below sum
mmarise our latest BAKKA
A farming seegment estim
mates.
Farming volu
ume (HOG t)
S ites
Farming North
h
9
West/Viking
7
Faroe Farming
g
Viking Seafoo
od (incl in West)
Total volume
e
16
Volume growtth Y/Y
EBIT/kg DKK
K
Farming North
h
West/Viking
Faroe Farming
g
Viking Seafoo
od (incl in West)
Average EBIT/kg
BAKKA EBIT (DKK)
Farming North
h
Farming Wes t/Viking
BAKKA upstrream
Havsbrún
VAP
EBIT (all seg
gments)
Elimination to
o EBIT/HQ
Op EBIT (ex IFRS)
Page 54
2009
18 680
11 970
3 824
3 694
38 168
0%
2009
9.3
2
2010
13
3 834
7 792
3 600
3 148
28
8 374
-2
26 %
2
2010
20.8
2012
23 533
19 075
2013
29 203
12 065
2014
25 671
2
18 342
2015E
30 222
19 686
2016E
26 000
25 000
1 733
44 341
4
22 %
2012
6.8
5.8
41 268
-7 %
2013
15.8
15.0
4 013
44
7%
2014
14.8
17.2
49 908
13 %
2015E
18.0
18.7
51 000
2%
2016E
19.4
19.4
13.7
14.8
15.5
2011
20 160
7 052
4 595
4 562
36 369
28 %
2011
11.2
2.1
4.2
3.1
8.6
3.4
3.9
5.9
2.1
6.2
15.6
15.8
18.3
19.4
2009
173
0
173
51
31
255
-51
204
2010
2
287
0
287
139
-40
386
-140
247
2011
226
14
240
-11
70
299
36
335
2012
159
111
270
60
37
367
-44
323
2013
461
181
642
102
-90
654
-67
587
2014
379
315
694
156
70
920
-86
834
2015E
545
369
914
183
70
1 168
-120
1 048
2016E
505
486
991
142
27
1 160
-120
1 040
5 October 2015
Fondsfina
ans Research
h
P/F Bakk
kafrost - 3Q155 Preview 6 October
O
2015
5
Bakkafrost P/f (DKK)
1Q14
2Q14
3Q14
4Q14
1Q15
Total revenue
es
631
711
584
757
613
800
678
643
Upstream rev enues
518
516
435
630
471
609
583
576
EBITDA
208
235
233
255
261
330
282
281
Op EBIT
186
212
209
227
235
303
256
254
71
0
0
0
0
0
0
0
256
212
209
227
235
303
256
254
0
Onerous conttracts
EBIT bef. adj.
IFRS biomass adj.
-114
60
52
-55
-38
0
-7
10
0
-4
-3
-11
6
3
EBT
118
212
255
314
166
237
256
252
EPS adj (DKK))
2.43
2.70
3.30
3.80
3.61
4.54
3.98
3.92
EPS adj (NOK
K)
2.63
2.95
3.66
4.39
4.22
5.20
4.85
4.97
Op CF
108
308
280
173
81
326
221
221
Op CF/kg fish
11.7
27.5
25.8
13.7
8.3
23.0
17.0
17.0
NIBD (DKK)
476
509
315
200
186
253
183
112
Farming North
h (t)
321
7 874
9 848
7 628
2 541
11 681
8 000
8 000
g (49%)
Faroe Farming
West/Viking (tt)
8 948
3 338
1 033
5 023
7 185
2 501
5 000
5 000
BAKKA farm ing (t)
9 269
11 212
10 881
12 651
9 726
14 182
13 000
13 000
mes Y/Y
Farming volum
Havsbrun fe ed (t)
Feed volumess Y/Y
6%
-4 %
14 %
5%
26 %
19 %
3%
18 827
29 808
23 133
14 400
17 657
23 000
20 718
-6 %
3%
-7 %
14 %
3%
-6 %
-23 %
-10 %
5 052
5 941
4 250
4 700
4 525
5 064
3 825
4 230
EBIT farming (upstream)
(
186
160
167
181
195
248
232
238
EBIT VAP (dow nstream)
-9
20
27
32
22
31
10
7
EBIT feed
16
51
55
34
55
46
53
29
274
193
231
249
248
272
326
296
EBIT eliminatio
ons
7
18
40
21
37
22
40
21
Group Op EB
BIT
186
212
209
227
235
303
256
254
EBIT/kg (upstrream)
20.1
14.2
15.3
14.3
20.0
17.5
17.9
18.3
EBIT/kg (HOG
G+VAP)
19.1
16.1
17.8
16.9
22.3
19.7
18.7
18.8
1.1
2.7
1.9
1.5
3.8
2.6
2.3
1.4
20.0
18.9
19.2
18.0
24.1
21.4
19.7
19.5
EBIT/kg (feed))
Group EBIT/k
kg ("incl feed")
12 %
13 956
VAP volum es
e (HOG t)
EBIT segm e nts
BAKKA VAP
P product
2Q15 3Q15E 4Q15E
At 2Q EB
BIT from VA
AP came in at
a DKK 31m, equal to 177% margin. At 2Q VAP
volumes went down by 15% Y/Y. Spot prices
s are up in 33Q and we estimate
e
3Q
EBIT VA
AP of DKK 1 0m. The VA
AP division purchase
p
raw
w material equal
e
to the
average spot price. F
From next ye
ear we assume that VAP
P customers
s are paying
up Y/Y and we expecct the positiv
ve EBIT VAP
P contributionn to continue
e. However,
we forecast BAKKA to continue to give prio
ority to freshh fish volum
mes towards
Russia and to other ccore restaura
ant customerrs paying bettter. Consequently, VAP
volumes should conti nue to narro
ow Y/Y (-5%).
VAP. DKKm
m
VAP revenue
es
VAP price/HOG kg
VAP volumess (HOG t)
VAP volume growth
VAP EBIT margin
m
%
VAP EBIT/kg
g HOG (NOK)
EBIT VAP bef.
b
elim (DKKm))
2009
359
32
11 297
34 %
9%
3.2
31
2010
473
37
12 908
14 %
-10 %
-3.8
-40
2011
507
40
12 824
4
-1 %
14 %
5. 7
70
2012
526
33
16 054
25 %
-2 %
2.3
37
2013
2
666
36
18 333
14
4%
-17
7%
-5.4
-90
2014
913
46
19 943
9%
15 %
3.9
70
2015E
686
39
1 644
17
-12 %
10 %
6.0
70
2016E
654
39
16 762
-5 %
4%
6.9
27
Havsbrún. Feed.
F
DKKm
Feed volume
es t
Feed volume
e growth Y/Y
Internal feed sales %
Feed EBIT margin
m
%
EBIT/kg feed
d (DKK)
EBIT Havsbrún (DKKm)
2009
68 107
0%
n.r.
10 %
0.74
51
2010
60 250
-12 %
n.r.
24 %
2.31
139
2011
87 293
45 %
75 %
-2 %
-0.13
-11
2012
91 398
5%
67 %
7%
0.66
60
2
2013
85 333
-7
7%
75
5%
9%
1
1.19
102
2014
85 724
0%
80 %
16 %
1.82
156
2015E
75 775
7
-12 %
89 %
16 %
2.42
183
2016E
78 523
4%
87 %
11 %
1.81
142
5 October 2015
Page 55
5
P/F Bakkafro
ost - 3Q15 Pre
eview 6 Octobe
er 2015
New 450 t B
BAKKA well
boat into 3Q
Q harvesting
and delousing capacity.
No use of lo
ocal waiting
cages at the
e new
HOG/VAP p
plant. The
oat will be
large well bo
much more efficient
than the sm
maller ones.
HOG plantss at Klaksvik,,
Kollafjordur and
Strendur will be
replaced byy the new
Glyvrar HOG
G/VAP plantt.
CAPEX PROGRAM
P
SOTP NOK
K 260 per
share
Total 201
14 and 2015 capex is set at DKK 250
0m and DKK
K 550m (and DKK 340m
in 2016). At 2Q the new 450 t well
w boat arrived at Faro
roe Islands. The capexprogram includes 2 n
new recirkula
ation hatcherries of DKK 420m replac
cing several
smaller ones.
o
The ne
ew hatcherie
es will produc
ce large smoolt (300 gram
m) reducing
sea wate
er exposure ttime and bio
ological risks
s. Longer terrm, BAKKA expects
e
1015% incrreased farm
ming capacity
y as a result. Purchasinng external smolt from
Iceland will
w probablyy be discontinued. We consider inveestments in smolt to be
value cre
eating.
Illustration of the new
w HOG/VAP plant
p
at Glyvar:
Updated BAKKA SOT
TP below – fair
f value aro
ound NOK 2260 (DKKNO
OK settled at
127).
Page 56
5 October 2015
Fondsfina
ans Research
h
P/F Bakkafrost - 3Q15 Preview 6 October 2015
P/f Bakkafrost (DKK)
2016 EBIT 2016EBIT/kg
Volume Sites
Capacity* HOG/site EV/EBIT EV/kg cap (NOK) EV target (DKK)
Farming North
505
19.4
26 000
9
37 000
2 889
9.0
156
4 545
Farming West/Viking
486
19.4
25 000
7
28 000
3 571
9.0
198
4 375
19.43
6.13
1.81
51 000
16 762
78 523
16
65 000
30 000
100 000
3 188
9.0
6.0
9.0
174
5 000
3
8 920
161
1 276
40
150
80
172
91
392
-1 080
10 201
205
9 996
48.9
205
127
260
Total farming (DKK)
991
Total VAP
27
Havsbrún Feed
142
FF Skagen incl Hanstholm (17%)
New wellboat, old boats to be sold
Pelagos pelagic (30%)
Faroe Farming (49%)
Own shares
2016 Dividend
Eliminations/HQ
-120
Total Group EV (DKK)
1 040
NIBD 4Q16E
Equity value
Outst. shares
SOTP per share (DKK)
DKK/NOK
Target per share (NOK)
300
6 000
0.335
392
-1.96
17.47
9.0
9.8
70
272
Risk assessment
factor. Fish diseases could always hit long term underlying values in fish farming.
In the Northern hemisphere, 2Q and 3Q is normally high season for potential fish
diseases (whereas the risk profile through the year is more or less reverse in
Chile).
Taxes at Faroe: 22.5%
+ 0.5% tax on farming
revenues from this year
Salmon prices around the world will differ from market to market. In Europe, fish
sales are primarily settled in EUR, while US sales are settled in USD. The larger
companies in the sector have EUR and USD debt in order to hedge FX risks. The
smaller companies in the sector are financed by NOK/DKK debt. Increased
DKKNOK ratio lately is clearly negative for BAKKA.
The biological risk at Faroe Island increases in summer and in 3Q/4Q when the
sea water temperatures and the density in the cages normally are at peak. At
Faroe Island there are no MAB-rules as in Norway, and the producers are on
average able to grow this fish larger as a consequence. Longer production time
in sea water as a consequence of sea lice could increase cultivation risks.
The main biological risks at the Faroe Islands are sea lice and AGD and ISA
outbreaks as a potential secondary consequence. Increased activities within
pelagic sector on Faroe Islands ahead could increase biological risks in
aquaculture somewhat. Pelagic fish could carry virus diseases. Finally, increased
local boat traffic from pelagic sector and others should probably also increase
next years when the herring catches will return.
5 October 2015
Page 57
P/F Bakkafrost - 3Q15 Preview 6 October 2015
Buy
Neutral
Sell
Recommendation
Buy
Neutral
Sell
Total
Recommendation
Buy
Neutral
Sell
Total
No
45
9
12
66
Percent
68 %
14 %
18 %
100 %
No
3
0
0
3
Percent
7%
0%
0%
The analysts receive compensation that is impacted by overall firm profitability, including investment banking activities.
The recommendation has not been changed from NEUTRAL. The previous recommendation was issued 26.08.15.
Ownership per 28.09.2015 in Bakkafrost:
Fondsfinans may hold shares in Bakkafrost as a result of daily trading/market making. Information on such holdings is not given when
of non-significant value.
Fondsfinans does not act as market maker in Bakkafrost.
Fondsfinans has not acted as corporate adviser, lead manager in IPO etc. during the past 12 months
DISCLAIMER
Page 58
5 October 2015
P/F Bakkafrost
+23 11 30 27
Philip M. Scrase
Sector:
Date:
Next result:
Target (NOK)
Recommendation:
P&L (DKKm)
Operating income
Op EBITDA
Op EBITDA-margin
Depreciation and amortisation
Onerous contracts
Op EBIT (Ex IFRS)
EBIT-margin
IFRS biomass adjustments
EBIT (post IFRS)
Associates (Faroe Farming)
Net financial items
Net agio
PTP (EBT)
Taxes
Net profit
Minority share
Mother company (DKK)
Adjustments:
IFRS (onr. contracts and biomass)
Asset write downs
Net adjustments
Net result (adjusted) (DKK)
EPS (DKK)
EPS adj (DKK)
EPS adj (NOK)
OpCEPS (DKK)
Capex/share (DKK)
DPS (DKK)
Multiples (NOK)
EV/Sales
EV/EBITDA
EV/EBIT
P/E adj.
P/B
Farming North
West/Viking
Viking Seafood (incl in West)
Total farming
Farming volume growth
EBIT per segment (DKKm)
Farming North
Farming West/Viking
Farming EBIT (DKKm)
VAP EBIT
Havsbrún EBIT (feed, oil, meal)
Segment EBIT
Eliminations to EBIT
Group EBIT
Upstream Farming EBIT/kg (DKK)
Farming North
Farming West/Viking
Viking Seafood (incl in West)
Av. EBIT/kg DKK
Havsbrún (Feed, oil, meal)
Hafsbrun volumes, t
Feed volume growth
Feed EBIT margin
Value Added Products (VAP)
VAP volumes, HOG tons
VAP volume growth
VAP revenues
VAP EBIT margin (ex. eliminations)
All inclusive DKK/kg-margin
Cash flow per kilo fish
Balance Sheet, mill NOK
Total assets
Total equity
Total non-current liabilities
Equity ratio
NIBD (DKK)
Return on equity
Aquaculture
272
Price (NOK):
06.okt.15 Book equity per share (NOK):
75
03.nov.15
Equity ratio:
64 %
260
185
NEUTRAL
12 months High / Low: 60.0 / 126.0
+23 11 30 23
Shares outst.:
Market cap (NOKm):
OSEAX:
48.86m
8 306
223
8 529
0.486
2012
1 856
403
22 %
80
-46
323
17 %
91
368
-25
-18
-2
323
-56
267
0
280
2013
2 491
674
27 %
86
-25
587
24 %
115
678
27
-7
32
730
-138
591
0
591
2014
2 683
931
35 %
97
71
834
31 %
-12
893
-1
7
0
899
-252
647
0
647
2015E
2 733
1 154
42 %
106
0
1048
38 %
-93
955
-5
-39
0
911
-202
709
0
709
2016E
2 649
1 149
43 %
109
0
1 040
157 %
0
1040
22
-20
0
1042
-250
792
0
792
2Q14
711
235
33 %
23
0
212
30 %
-10
202
10
-9
8
212
-86
126
0
126
3Q14
584
233
40 %
24
0
209
36 %
60
269
0
-14
0
255
-44
211
0
211
4Q14
757
255
34 %
27
0
227
30 %
52
279
-4
39
0
314
-92
222
0
222
1Q15
613
261
43 %
26
0
235
38 %
-55
180
-3
-11
0
166
-34
132
0
132
2Q15
800
330
41 %
26
0
303
38 %
-38
265
-11
-17
0
237
-46
191
0
191
3Q15E
678
282
42 %
26
0
256
38 %
0
256
6
-6
0
256
-61
194
0
194
4Q15E
643
281
44 %
27
0
254
39 %
0
254
3
-5
0
252
-60
191
0
191
44
-21
20
260
48.9
5.7
5.3
5.3
4.8
-1.4
1.0
91
0
73
518
48.9
12.1
10.6
10.6
10.6
-4.2
2.0
59
0
49
598
48.9
13.2
12.2
13.6
17.8
-4.8
4.5
-93
0
-74
783
48.9
14.2
16.0
19.3
17.4
-9.4
6.0
0
0
0
792
48.9
16.2
16.2
20.6
18.4
-11.5
8.0
-10
0
-6
132
48.9
2.6
2.7
2.9
6.3
-1.5
60
0
50
161
48.9
4.3
3.3
3.7
5.7
-1.0
52
0
37
186
48.9
4.6
3.8
4.4
3.5
-1.6
-55
0
-44
176
48.9
2.7
3.6
4.2
1.7
-2.2
-38
0
-31
222
48.9
3.9
4.5
5.2
6.7
-1.5
0
0
0
194
48.9
4.0
4.0
4.9
4.5
-2.9
0
0
0
191
48.9
3.9
3.9
5.0
4.5
-2.9
2.9
8.2
8.5
12.5
3.6
4.1
9.7
10.7
14.1
4.2
4.0
9.3
10.3
13.2
3.3
26 000
25 000
7 874
3 338
9 848
1 033
7 628
5 023
2 541
7 185
11 681
2 501
8 000
5 000
8 000
5 000
51 000
2%
11 212
6%
10 881
-4 %
12 651
14 %
9 726
5%
14 182
26 %
13 000
19 %
13 000
3%
23 533
19 075
1 733
44 341
22 %
29 203
12 065
25 671
18 342
41 268
-7 %
44 013
7%
30 222
19 686
0
49 908
13 %
159
111
274
37
60
371
-50
277
461
181
642
-90
102
654
-67
562
379
315
694
70
156
920
-86
834
545
369
914
70
183
1 168
-120
1 048
505
486
991
27
142
1 009
-120
1 040
112
47
160
20
51
231
-18
212
151
16
167
27
55
249
-40
209
109
72
181
32
34
248
-21
227
51
144
195
22
55
272
-37
235
205
44
248
31
46
326
-22
303
143
89
232
10
53
296
-40
256
147
92
238
7
29
274
-21
254
6.8
5.8
2.1
6.2
15.8
15.0
14.8
17.2
18.0
18.7
19.4
19.4
14.2
14.2
15.3
15.3
14.3
14.3
20.0
20.0
17.5
17.5
17.9
17.9
18.3
18.3
15.6
15.8
18.3
19.4
14.2
15.3
14.3
20.0
17.5
17.9
18.3
91 398
5%
7%
85 333
-7 %
9%
85 724
0%
16 %
75 775
-12 %
16 %
78 523
4%
11 %
18 827
29 808
23 133
14 400
17 657
23 000
20 718
18 %
19 %
15 %
27 %
16 %
16 %
9%
16 054
25 %
526
7%
18 333
14 %
666
-14 %
19 943
9%
913
8%
17 644
-12 %
686
10 %
16 762
-5 %
654
4%
5 941
22 %
267
8%
4 250
1%
155
17 %
4 700
-7 %
259
13 %
4 525
-10 %
189
12 %
5 064
-15 %
191
17 %
3 825
-10 %
145
7%
4 230
-10 %
161
4%
6.2
5.3
2012
1 198
1 373
2 571
1 263
990
2 571
49 %
807
21 %
234
-67
-159
13.6
12.5
2013
1 328
1 784
3 112
1 665
1 071
3 112
54 %
603
31 %
517
-204
-156
18.9
19.8
2014
1 463
2 000
3 463
2 064
1 036
3 463
60 %
200
29 %
870
-232
-414
21.0
17.0
2015E
1 802
2 063
3 865
2 611
1 014
3 865
68 %
112
30 %
848
-458
-358
20.4
17.6
2016E
2 253
1 970
4 223
3 218
764
4 223
76 %
205
25 %
899
-560
-432
24.1
21.4
8.3
23.0
Number of shares
4 594 437
4 491 217
1 973 185
1 766 720
2 289 431
1 559 703
972 525
928 633
778 812
738 583
710 727
699 602
19.7
17.0
19.5
17.0
30.06.2015
9.4%
9.2%
5.0%
3.7%
2.3%
2.1%
2.0%
2.0%
1.9%
1.4%
1.4%
1.4%
18.9
19.2
27.5
25.8
Largest shareholders
Oddvør Jacobsen
Johan Regin Jacobsen
Spar Nord Bank
Danske Bank
SEB
JPMorgan, Luxembourg
JPMorgan
JPMorgan
JPMorgan
Mellon Bank
State Street
SEB
18.0
13.7
Norway Royal Salmon ASA
Downgrade to Neutral (Buy)
Culling 1.7 mill S1-15G individuals in Region North
Share data (NOK m)
Sector
Share Price: NOK 66
Target: NOK 69 (73)
Aquaculture
Reuters/ Bloomberg
Risk rating
Outst shares (mill)
Market cap (mill)
NIBD (mill)
NRS
Medium
43 572
1 571
631
2 202
Free float %
55 %
High/ low 52w
Weight OSEAX %
87
72.0 / 46.7
0.1601
19/ 30/ 24
07/ 22/ 16
NRS guidance (incl. minorities)
In December 2014 the 20 new green licenses in Region North were approved,
with NRS being awarded the 9 regional licenses for which it was initially
nominated. In total, NRS is thus awarded 10 new green regional licenses. This
represents a significant and attractive long term growth potential from very late
2017 or primarily 2018 onwards. NRS has the capacity to lift necessary capex
and working capital build-up from next year as well as four new feeding
platforms. Theoretical capacity, long term, should be around 45 000 t. This fall
NRS will, for the first time, stock triploid (sterile) smolt in Finnmark.
Short term, for 3Q 2015 we expect weak performance due to culling 1.7 mill
diploid smolt in Region North. Extra 3Q cost is stipulated to NOK 20-25m, and
we estimate moderate 3Q EBIT of NOK 16m. Further, the two ISA-sites will be
fallowed until the spring next year and reduce harvesting for 2H2016. Full year
we forecast 2016 volumes to go down by around 13% Y/Y. To some extent the
company will be able to compensate a higher production at the remaining sites
through harvesting on higher average weights. However, 1.7 mill smolt
individuals represent around 7 000 HOG t, which will be hard to compensate.
NRS volumes will obviously go down in 2016 before growing again from 2017.
In total, we estimate EPS adj. of around NOK 3.75 (4.29) and NOK 5.08 (6.34)
for 2015 and 2016. Due to tax losses carried forward, the company expects
little tax payable in 2015 and 2016. Based on updated estimates, we calculate
SOTP values of NOK 69 (73) per share and downgrade NRS to Neutral.
Bent Rølland
Fondsfinans AS
TEL: +47 23 11 30 27
[email protected]
Philip M. Scrase
Fondsfinans AS
TEL: +47 23 11 30 23
[email protected]
Key figures (MNOK)
2012 2013 2014 2015E
Total revenues
1 744 2 604 2 600 3 307
EBITDA
61
290
199
238
EBIT (before IFRS)
30
256
158
187
IFRS biomass adj
49
95
57
-127
PTP
41
396
321
38
Reported EPS
1.78
5.25
5.03
3.75
EPS adj.
1.78
5.25
5.03
3.75
DPS payments
0.00
1.00
2.20
1.50
NIBD
566
454
639
600
Farming North
13 945 20 491 17 986 23 458
Farming South
7 218 4 700 4 368 5 776
Total volumes
21 163 25 191 22 354 29 234
Volumes Y/Y
13 % 19 % -11 % 31 %
EBIT/kg (all incl.)
1.43 10.16
7.07
6.39
EV/ Sales
1.3
1.1
EV/ EBITDA
17.3
14.6
21.9
18.6
P/E adj
12.9
17.6
P/B
2.8
2.9
NIBD/kg
29
21
2016E
3 462
365
314
0
332
5.08
5.08
2.00
615
19 500
5 800
25 300
-13 %
12.40
1.0
9.6
11.1
13.0
2.3
24
3Q14
527
-4
-15
60
57
0.99
-0.51
4Q14 3Q15E 4Q15E
781
694 1 168
71
29
95
59
16
82
72
178
10
88
3.23
0.09
1.26
0.47
0.09
1.26
557
639
4 443 5 261
1 674
159
6 117 5 420
34 % -35 %
9.2
3.4
631
6 500
500
7 000
14 %
2.3
600
7 000
2 100
9 100
68 %
9.0
Norway Royal Salmon ASA - 3Q15 Preview 6 October 2015
Updated Norway Royal Salmon estimates and valuation
The tables below sum up NRS farming margins and volumes and our updated
estimates after culling sea water smolt in Region North.
Longer term, NRS has ambitions of increasing the internal share of smolt
production in Region North. At 2Q14 the company confirmed plans of building a
new state-of-the-art smolt plant in Finnmark together with a regional partner.
Initial capacity should be around 5 mill smolt, and the project might be set up as
a 50/50 joint venture with stand-alone financing. We consider it to be sensible to
increase the internal smolt share in order to produce more robust smolt fish.
NRS probably stocking triploid salmon in Rognsundet in 2H15 and
probably in Bakfjorden in 1H16
According to studies by i.a. AquaGen, triploid salmon performs at least as well as
conventional diploid salmon in the fresh water phase and up to three kg in sea
water, though the fish is more sensitive to oxygen levels, implying the need for
good sea water sites. Historical issues with increased risk of deformities and
cataract have been addressed with adaptions to the feed.
The Skardalen plant in Lyngen is enlarged, and is now producing triploid smolt
for 2H15 stocking in Finnmark. At 2Q NRS confirmed that triploid salmon will be
stocked from 2H15 for late 2017 to 2018 harvesting. Further, a new farming
cluster at Sørøya in Finnmark was stocked in 2H14 (S014G), which will
contribute with 2016 volumes to the market. Culling smolt fish at Kokelva will
reduce 2016 volumes to the marked.
In order to utilize its 45’ t HOG farming capacity, NRS is working on expanding
from five to six farming clusters in region North. According to the company
management, it will take time to get new sea water areas approved in Troms,
which we believe will be in Mid-Troms area (Vengsøya/Balsfjord area?).
NRS has renewed the CEQ harvesting agreement at Hammerfest securing the
late value chain. Longer term, is seems that the regional players are looking into
building a new large processing plant in Finnmark together (off-balance sheet in
case). Stand-alone alternative could also be considered.
We consider the 2015
guidance to be more or
less fair.
2016 volumes will go
down Y/Y
Norway Royal Salmon ASA* 2016 Yield
HOG volumes
MAB-cap. per license
Region South (6)
7 500
967
Region North (29)
37 500
672
NRS volumes (35)
45 000
NRS volumes Y/Y
Region South Y/Y
Region North Y/Y
External volumes sold
NRS sales (incl external volumes)
Sale volumes Y/Y
NRS smolt stocking (mill)
2009
2 333
4 495
6 828
40 372
47 200
4%
2010
4 677
6 001
10 678
56 %
100 %
34 %
38 906
49 584
5%
2012
7 218
13 945
21 163
13 %
22 %
8%
36 510
57 673
14 %
2013
4 700
20 491
25 191
19 %
-35 %
47 %
36 950
62 141
8%
2014
4 368
17 986
22 354
-11 %
-7 %
-12 %
36 756
59 110
-5 %
2015E
5 776
23 458
29 234
31 %
32 %
30 %
39 288
68 522
16 %
2016E
5 800
19 500
25 300
-13 %
0%
-17 %
39 288
64 588
-6 %
Curr guid
2015
5 700
24 800
30 500
36 %
-1 %
6%
Guided Guided Guided Guided FF est. FF est.
Region South (mill smolt)
Region North (mill smolt)
NRS smolt stocking
Page 62
2011
5 910
12 871
18 781
76 %
26 %
114 %
31 647
50 428
2%
1 400
4 300
5 700
5 October 2015
1 800
5 900
7 700
1 700
5 800
7 500
1 900
5 700
7 600
1 800
5 500
7 300
1 700
3 800
5 500
Updated NRS EBIT
profile
Quarterly EBIT
distribution per segment
Weak 3Q EBIT
expected due to
PW/cullling smolt
NRS Group
Farming North, rev (mill)
Farming South, rev (mill)
Upstream revenues
Farming North (HOG t)
Farming South (HOG t)
NRS harvesting
Volumes Y/Y
Farming North
Farming South
EBIT farming (mill)
EBIT-margin,%
Farming North (EBIT/kg)
Farming South (EBIT/kg)
2010
210
167
377
6 001
4 677
10 678
56 %
2011
348
152
501
12 871
5 910
18 781
76 %
2012
351
190
541
13 945
7 218
21 163
13 %
2013
759
177
936
20 491
4 700
25 191
19 %
2014
683
163
846
17 986
4 368
22 354
-11 %
2015E
899
223
1 122
23 458
5 776
29 234
31 %
2016E
862
263
1 125
19 500
5 800
25 300
-13 %
85
51
110
29 %
9.8
10.9
-8
-5
41
8%
3.6
-0.8
22
6
29
5%
1.7
0.8
252
42
294
31 %
12.3
9.0
206
16
221
26 %
11.4
3.6
150
33
183
16 %
6.4
5.7
249
72
320
28 %
12.8
12.3
NRS Sales & Marketing
Sales revenues (NOKm)
Op EBIT (NOKm)
Volume sold (t)
Eksternal volumes sold
EBIT/kg sales (NOK)
Sales volumes Y/Y
EBIT, all segments
Group EBIT
EBIT, eliminations
EBIT/kg, all inclusive
2010
1 991
26
49 584
38 906
0.52
5%
136
123
13
11.5
2011
1 686
24
50 428
31 647
0.47
2%
65
45
20
2.4
2012
1 649
23
57 673
36 510
0.41
14 %
52
30
22
1.4
2013
2 446
-19
62 141
36 950
-0.31
8%
275
256
19
10.2
2014
2 578
-5
59 110
36 756
-0.09
-5 %
216
158
58
7.1
2015E
3 043
36
68 522
39 288
0.52
16 %
219
187
32
6.4
2016E
3 195
26
64 588
39 288
0.40
-6 %
346
314
32
12.4
NRS Group
Farming North, rev (mill)
Farming South, rev (mill)
Upstream revenues
Farming North, HOG t
Farming South, HOG t
NRS harvesting (t)
NRS Volumes Y/Y
Farming North
Farming South
EBIT farming (NOK m)
Farming North, EBIT/kg
Farming South, EBIT/kg
1Q14
220
21
241
5 007
428
5 435
1%
2Q14
118
75
193
3 275
2 107
5 382
-21 %
3Q14
150
60
210
4 443
1 674
6 117
34 %
4Q14
195
7
202
5 261
159
5 420
-35 %
1Q15
230
48
278
6 283
1 231
7 514
38 %
2Q15
125
69
194
3 675
1 945
5 620
4%
3Q15E
260
20
280
6 500
500
7 000
14 %
4Q15E
284
87
370
7 000
2 100
9 100
68 %
94
6
100
18.71
15.40
25
7
32
7.69
4.35
22
1
24
5.00
0.84
65
2
66
12.26
10.84
54
11
65
8.55
9.18
18
5
22
4.83
2.38
20
-1
19
3.00
-1.00
60
17
77
8.50
8.30
NRS Sales & Marketing
Sales revenues (NOKm)
Op EBIT (NOKm)
Volume sold (t)
Eksternal volumes sold
EBIT/kg sales (NOK)
Sales volumes Y/Y
EBIT, all segments
Group EBIT
EBIT, eliminations
EBIT/kg, all inclusive
1Q14
693
-8
13 978
8 543
-0.55
3%
92
87
5
16.0
2Q14
593
-6
14 253
8 871
-0.44
-7 %
26
27
-1
4.9
3Q14
513
6
12 706
6 589
0.44
-5 %
29
-15
44
-2.4
4Q14
780
3
18 173
12 753
0.17
-8 %
69
59
10
10.9
1Q15
753
12
16 959
9 445
0.73
21 %
77
69
8
9.2
2Q15
681
5
16 121
10 501
0.30
13 %
27
19
8
3.4
3Q15E
611
5
13 589
6 589
0.40
7%
24
16
8
2.3
4Q15E
998
13
21 853
12 753
0.60
20 %
90
82
8
9.0
5 October 2015
Page 63
10 green NRS licenses
from the government
approved
Wilsgård awarded two
regional green licenses
in December 2014
Subsidiaries
Segment
NRS Finnmark AS
North
NRS Finnmark AS (green) North
Nor Seafood AS
North
Nor Seafood AS (green)
North
Nord-Senja Laks AS
North
Nord Senja Laks (green)
North
NRS Feøy AS
South
Sum licenses (subisdiaries)
Minority NRS licenses
NRS group licenses
County
Licenses Ownership
HOG plant
Finnmark
14
100 %
rental (CEQ)
Finnmark
5
100 %
rental (CEQ)
Troms/Botnhamn
2
83 %
Wilsgård/
Troms/Botnhamn
2
67 %
Wilsgård/
Troms/Torsken
3
67 % in-house HOG
Troms/Torsken
3
83 % in-house HOG
Sunnhordaland
6
100 %
Espevær
35
3
2.54
7.26 %
32.5
Minority holdings
County
Licenses Ownership
Wilsgård Fiskeoppdrett AS
Troms
6
37.5 %
Måsøval Fishfarm AS
Sør-Trøndelag
2
36.1 %
Hellesund Fiskeoppdrett AS
Aust-Agder
3
33.5 %
NRS minorities
11
Source: Norway Royal Salmon ASA, Fondsfinans Research
Valuation approach
HOG plant
in-house
in-house
moving fish
We continue to value Norway Royal Salmon based on a bottom-up approach
where the individual farming clusters and business units are assessed
separately. NRS reports upstream segments excluding sales (separate
segment). In addition, we have added on extra value on the long-term capacity in
Region North (NOK 550m).
Based on our estimates and assumptions table below sums up our SOTP
valuation of NRS.
Upstream
Downstream/sales:
EV/EBIT of 10
Minorities
Green licenses: NOK
60m each
SOTP of NOK 69 (73)
per share
Page 64
SOTP - Norway Royal Salmon ASA
Licenses Ownership
Vol 16 Capacity* EBIT/kg*
EBIT
Farming Northern Norway
29
100%*
19 500
37 500
12.76
249
Farming South of Norway
6
100 %
5 800
7 500
12.33
72
NRS farming (minorities incl)
35
100 %
25 300
45 000
0.01
320
NRS S& D (45 countries)
100 %
64 588
0.40
26
EBIT adj (HQ, overhead)
-32
Total farming (upstream incl sales)
book val
314
Wilsgård Fiskeoppdrett AS (Senja) incl 2 green lic
6
37.5%
3 978
7 200
58 000
Måsøval Fishfarm AS (Frøya)
2
36.1%
2 106
2 500
17 000
Hellesund Fiskeoppdrett AS ("Høvåg MAB")
3
34 %
2 340
3 300
43 000
Hardanger Fiskeforedling AS (processing plant)
31 %
8 000
Ranfjord Fiskeprodukter AS (5.5m smolt cap. - flow through)
37.75 %
5.5
19 000
Skardalen Settefisk AS (NRS: 30%; Wilsgård: 70%)
30 %
2.5
3 000
Espevær Laks AS (Bømlo processing plant)
38 %
1 000
Total associates
11
8 mill smolt 8 424
58 000
149 000 36 064
Tax losses carried forward, UB 2014=231m
231 000
10 new green licenses - 2017/18 volumes to the marke10
60 000
Total NRS EV (incl 10 new green licenses)
35
314
Minority holdings (at Senja)
2.54
Nor Seafood AS (82.5%), Nord Senja Laks AS (66.7%)
31.12.2016 NIBD
-3 048
Minority NIBD adj. (share of 7.3%)
Dividend, not paid (2016). 2.0 per share
Own shares (TRS financed in DNB)
5%
Equity values, NRS group (adj. for minorities)
32.46
41 952
Outst NRS shares
100 %
Equity value per share (SOTP values)
Source: Fondsfinans, *) Long term capacity incl 10 new green licenses (incl minority holders)
5 October 2015
EV/EBIT
10.0
10.0
10.0
9.0
10.0
9.9
12.9
EV
2 487 500
715 400
3 202 900
232 517
-323 320
3 112 097
98 953
57 020
105 450
6 690
9 815
7 500
2 000
287 428
57 750
600 000
4 057 274
-217 871
614 957
-15 817
87 144
0
3 004 089
43 572
69
EV/Cap
66
95
71
66
75
95
n.m.
Norway Royal Salmo
on ASA - 3Q1 5 Preview 6 October
O
2015
5
Overview off NRS
partners alo
ong the coast
line.
Ten green N
NRS
licenses aw
warded in
Region Norrth
NRS Head office in
Trondheim
NRS sales o
office in
Kristiansand
d for the
whole enlarrged group
Sales for NR
RS and
associated p
partner
farmers with
h a total of
+90 licenses (NRS
should be a proxy for
the whole in
ndustry on
average)
Signs of ISA
A in Region
North:
N
– NRS Troms (Senjja area).
Region North
Culling 0.5 m
mill smolt in
Troms
Region North
N
– NR
RS Finnmark
k (Sørøya, Stjernøya,
S
R
Rognsundet, Årøya and
Snefjorde
en)
5 October 2015
Page 65
5
Norway Roya
al Salmon ASA
A - 3Q15 Prev
view 6 Octobe
er 2015
Culling 1.2 m
mill smolt in
Finnmark att Kokelv
To be fallow
wed until the
spring
Extra charg
ge of
between NO
OK 20-25m
that will be b
booked at
3Q.
Region South
S
– NRS Rogaland/H
Hordaland (Haugesund/Esspevær area
a)
Page 66
5 October 2015
Fondsfina
ans Research
h
Buy
Neutral
Sell
Recommendation
Buy
Neutral
Sell
Total
Recommendation
Buy
Neutral
Sell
Total
No
45
9
12
66
Percent
68 %
14 %
18 %
100 %
No
3
0
0
3
Percent
7%
0%
0%
The recommendation has been changed from BUY to NEUTRAL. The previous recommendation was issued 27.08.15.
Ownership per 28.09.15 in Norway Royal Salmon:
Fondsfinans may hold shares in Lerøy Seafood Group as a result of daily trading/market making. Information on such holdings is not
Fondsfinans does not act as market maker in Norway Royal Salmon.
DISCLAIMER
5 October 2015
Page 67
Norway Royal Salmon ASA
Sector:
Date:
Next result:
Target
Recommendation:
Aquaculture
06.okt.15
10.nov.15
69
Neutral
Philip M. Scrase
66.0
Price (NOK):
21.1
Equity ratio:
39 %
87
12 months High / Low: 72.0 / 46.7
TNOK
2012
2013
Operation income
1 744 266 2 603 712
EBITDA
60 783 289 729
EBITDA-margin
3%
11 %
EBIT pre fair value
30 334 256 000
EBIT-margin
2%
10 %
IFRS adj
49 428
94 725
EBIT
79 762 350 725
Income assosiates (NRS share)
10 464
28 834
Share profit/other adj. TRS
-9 919
37 827
Other financial items
-39 559
-21 096
Result before tax
40 748 396 290
Income tax
-9 129
-80 487
Net profit
31 619 315 803
Minority share (Senja)
3 428
13 371
Mother company
28 191 302 432
43 572
43 572
EPS adj.
1.78
5.25
CEPS
-0.1
4.9
Cash flow/kg fish
-0.1
8.4
DPS
0.0
1.0
Multiples:
EV/Sales
EV/EBITDA
EV/EBIT
P/E adj
P/B
Farming North
2012
2013
Sales revenues
350 815 758 583
EBIT ex IFRS
23 035 251 569
Volume harvested (HOG)-fish
13 945
20 491
Price/kg
25.2
37.0
Op EBIT/kg (FOB plant)
1.65
12.28
Farming South
2012
2013
Sales revenues
190 336 177 391
EBIT ex IFRS
5 746
42 429
Volume harvested (HOG)-fish
7 218
4 700
EBIT/kg
0.80
9.03
NRS sales (incl external vol)
2012
2013
EBIT nedstrøm
23 414
-19 087
Volume sold-trading
57 673
62 141
Trading volumes, Y/Y
14 %
8%
EBIT/kg (Group sales volumes)
0.41
-0.31
NRS Group
Total harvesting
21 163
25 191
1.4
11.7
NRS EBIT/kg (upstream segments)
Group EBIT/kg (all inclusive)
1.4
10.2
Impl cash flow/kilo fish
-0.1
8.4
Balance sheet (TNOK)
2012
2013
800 653 850 721
874 873 1 200 892
Total assets
1 675 526 2 051 613
1 675 526 2 051 584
CF operations
-2 592 211 835
Op.CF (NOK/kg fish)
-0.1
8.4
CF Investments
-36 970
-24 347
CF financing
43 211 -143 609
Cash (closing balance)
9 854
53 733
NIBD
566 075 453 881
Equity ratio (35% cov.)
36 %
42 %
Return on equity
5%
41 %
2014
2015E
2016E
2 599 798 3 307 085 3 462 102
199 476 237 527 365 253
8%
7%
11 %
158 065 186 708 313 793
6%
6%
9%
57 456 -127 175
0
215 521
59 533 313 793
27 136
7 306
36 064
100 262
-5 268
0
-22 210
-23 280
-17 400
320 709
38 291 332 457
-52 423
-11 400
-86 439
268 286
26 891 246 018
13 937
14 007
42 288
254 349
12 884 203 731
43 572
43 572
43 572
5.03
3.75
5.08
2.2
5.6
5.7
4.3
8.4
9.9
2.2
1.5
2.0
1.3
17.3
21.9
12.9
2.8
2014
683 091
205 588
17 986
38.0
11.43
2014
163 068
15 839
4 368
3.63
2014
-5 136
59 110
-5 %
-0.09
1.1
14.6
18.6
17.6
2.9
2015E
898 866
150 476
23 458
38.3
6.41
2015E
223 000
32 855
5 776
5.69
2015E
35 761
68 522
16 %
0.52
1.0
9.6
11.1
13.0
2.3
2016E
861 750
248 750
19 500
44.2
12.76
2016E
262 940
71 540
5 800
12.33
2016E
25 835
64 588
-6 %
0.40
22 354
9.9
7.1
4.3
2014
1 092 990
1 506 469
2 599 459
2 599 463
95 456
4.3
-162 365
74 666
61 490
639 387
39 %
27 %
29 234
6.3
6.4
8.4
2015E
1 174 766
1 244 892
2 419 658
2 419 768
245 295
8.4
-115 065
-84 642
107 078
600 171
41 %
1%
25 300
12.7
12.4
9.9
2016E
1 325 594
1 235 106
2 560 700
2 560 810
249 758
9.9
-160 000
-104 544
92 292
614 957
48 %
18 %
+23 11 30 27
+23 11 30 23
Shares outst.:
Market cap (NOKm):
NIBD (NOKm):
Weigh OSEAX:
43 572m
1 571
631
2 202
0.1730
3Q14
527 311
-4 138
-1 %
-14 573
-3 %
59 679
45 106
11 263
5 658
-5 461
56 566
-10 704
45 862
2 529
43 333
43 572
-0.51
1.1
9.0
4Q14
781 389
71 077
9%
59 036
8%
72 053
131 089
5 462
48 334
-6 845
178 040
-33 775
144 265
3 477
140 788
43 572
0.47
-0.3
-2.5
1Q15
760 067
81 540
11 %
69 316
9%
-124 687
-55 371
-6 991
-10 643
-7 136
-80 141
16 877
-63 264
-592
-62 672
43 572
1.67
-0.9
-7.4
2Q15
684 370
31 946
5%
19 081
3%
-2 488
16 593
4 748
5 375
-5 822
20 894
-2 917
17 977
1 169
16 808
43 572
0.32
1.4
8.0
3Q15E
4Q15E
694 405 1 168 243
29 218
94 824
4%
8%
16 353
81 959
2%
7%
0
0
16 353
81 959
-722
10 271
0
0
-5 722
-4 600
9 909
87 630
-2 576
-22 784
7 332
64 846
3 315
10 115
4 017
54 731
43 572
43 572
0.09
1.26
1.6
0.9
12.4
5.7
3Q14
149 921
22 217
4 443
33.7
5.00
3Q14
60 402
1 414
1 674
0.84
3Q14
5 585
12 706
-5 %
0.44
4Q14
195 419
64 501
5 261
37.1
12.26
4Q14
6 565
1 724
159
10.84
4Q14
3 166
18 173
-8 %
0.17
1Q15
230 326
53 717
6 283
36.7
8.55
1Q15
47 826
11 296
1 231
9.18
1Q15
12 438
16 959
21 %
0.73
2Q15
125 040
17 759
3 675
34.0
4.83
2Q15
68 944
4 629
1 945
2.38
2Q15
4 776
16 121
13 %
0.30
3Q15E
260 000
19 500
6 500
40.0
3.00
3Q15E
19 500
-500
500
-1.00
3Q15E
5 436
13 589
7%
0.40
4Q15E
283 500
59 500
7 000
40.5
8.50
4Q15E
86 730
17 430
2 100
8.30
4Q15E
13 112
21 853
20 %
0.60
6 117
5 420
7 514
3.9
12.2
8.7
-2.4
10.9
9.2
-2.5
-7.4
8.0
Shareholders
Gåsø Næringsutvikling AS
Glastad Invest AS
Egil Kristoffersen og sønner
Havbruksinvest AS
Måsøval Eiendom AS
SpareBank 1 Markets
DNB, egenhandel (TRS)
Nyhamn AS
Hellesund Fiskeoppdrett AS
Lovundlaks AS
State Street
Wilsgård Fiskeoppdrett AS
Total outst. shares
5 620
4.0
3.4
12.4
7 000
2.7
2.3
5.7
30.sep.15
6 475 494
5 632 014
4 568 379
3 618 940
3 548 761
3 063 448
2 623 184
2 184 541
1 581 941
1 026 268
703 985
481 001
43 572 191
9 100
8.5
9.0
8.3
14.9 %
12.9 %
10.5 %
8.3 %
8.1 %
7.0 %
6.0 %
5.0 %
3.6 %
2.4 %
1.6 %
1.1 %
100 %
AKVA Group ASA
Company Update
Next results date
6 October 2015
5 November 2015
Share data (NOK m)
AKVA
Sector
Aquaculture
Reuters/ Bloomberg
AKVA
Risk rating
Medium
25.8
Market cap (mill)
749
NIBD (mill)
52
801
Free float %
20 %
10.06
High/ low 52w
29.0 / 18.2
Weight OSEAX %
0.0268
20/ 09/ 42
09/ 02/ 34
Estimate changes
AKVA Group
Curr
Prev
Curr
2015E
2015E
2016E
1 423
1 279
1 513
Revenues Y/Y
14 %
6 %
6 %
EBITDA
130
119
138
EBITDA-margin
9 %
9 %
9 %
EBIT
88
83
95
EBIT-margin
6 %
6 %
6 %
Net finance
5
6
4
PTP
82
77
91
Calc. Tax
22
19
23
Out Shares (mill)
25.8
25.8
25.8
EPS
2.32
2.25
2.63
EPS adj
2.32
2.25
2.63
DPS
1.5
1.5
1.5
Cage based tech (NOK m)*
Revenues CBT
1 112
948
1 160
EBITDA 104
89
106
EBITDA‐margin
9 %
9 %
9 %
Segment EBIT
72
60
71
EBIT‐margin, %
6 %
6 %
6 %
Land based tech (NOK m)*
Revenues LBT
188
202
226
EBITDA 9
14
16
EBITDA‐margin
5 %
7 %
7 %
EBIT
7
12
13
EBIT‐margin, %
4 %
6 %
6 %
Software (NOK m)
Revenues SW
123
129
128
EBITDA 16
16
16
EBITDA‐margin
13 %
13 %
12 %
EBIT
8
5
7
EBIT‐margin, %
6 %
4 %
6 %
*) 2012: Including sale of Maritech (gain of NOK 29m)
Op revenues
BUY
Prev
Chg
Chg
2016E
2015E
2016E
1 290
1 %
117
9 %
81
6 %
4
77
19
25.8
2.24
2.24
1.5
11 %
8 p.p.
9 %
0 p.p.
5 %
0 p.p.
‐12 %
7 %
18 %
0 %
3 %
3 %
0 %
17 %
5 p.p.
18 %
0 p.p.
17 %
0 p.p.
0 %
18 %
22 %
0 %
17 %
17 %
0 %
920
84
9 %
52
6 %
17 %
17 %
0 p.p.
19 %
0 p.p.
26 %
26 %
0 p.p.
36 %
0 p.p.
234
16
7 %
14
6 %
‐7 %
‐33 %
‐2 p.p.
‐42 %
‐2 p.p.
‐4 %
‐1 %
0 p.p.
‐4 %
0 p.p.
137
17
12 %
5
4 %
‐5 %
3 %
0 p.p.
52 %
3 p.p.
‐7 %
‐7 %
0 p.p.
41 %
2 p.p.
Share Price: NOK 29 (06.10.2015)
Target: NOK 39 (34)
The market leader in aqua equipment and services
AKVA Group is attractively positioned as the technology based market leader
in the global aquaculture supply and service industry. As the number one
supplier with presence in all salmon farming regions offering a full product and
service spectre, AKVA has a platform to build partnership relations with its
customers. The company’s three segments offer a broad range of products
and services for the entire farming value chain from Land Based Technologies
(LBT), Cage Based Technologies (CBT) and Software (SW).
Despite moderate growth for aquaculture volumes ahead, we expect continued
high capex in the aquaculture industry, driven by stricter regulations and need
for safe biology. Smolt investments in Norway and the UK in particular are
driven by the trend towards larger smolt in order to reduce biological risk and
increase sea water capacity utilisation. AKVA is highly dependent on the
farming companies’ aggregated capex programmes, which are normally quite
volatile. AKVA is pursuing a strategy of increasing recurring revenues, which
i.a. includes a rental business model in Norway. This business remains at a
moderate level, likely partially due to strong balance sheets for most farmers.
While AKVA is clearly leading within sea-based technology, the position in the
competitive land-based segment is weaker. The Aquatec Solutions A/S
acquisition in Denmark seems like an attractive platform for taking a
significantly stronger position in a growing market.
We estimate the EBITDA margin to stabilise at around 9% in 2015 and 2016,
whereas the company targets 10%. We calculate EPS adj. of around NOK 2.3
and 2.6 in 2015E and 2016E respectively. Our SOTP values AKVA to NOK 39
per share. This report is an initiation of coverage with a BUY-recommendation.
AKVA Group ASA
2008
2009
2010
2011
2012
2013
2014
2015E
2016E
3Q14
4Q14
1Q15
Op revenues
867
599
743
894
801
917
1 246
1 423
1 513
330
305
325
402
358
339
Revenues Y/Y
1%
-31 %
24 %
20 %
-7 %
10 %
36 %
14 %
6%
83 %
24 %
5%
33 %
8%
11 %
138
35
13
27
41
40
23
9.1 % 10.6 %
4.4 %
8.2 % 10.2 % 11.2 %
6.9 %
EBITDA
EBITDA-margin
EBIT
EBIT-margin
53
-12
-9
62
57
46
103
130
6.1 %
-2.0 %
-1.2 %
6.9 %
7.1 %
5.1 %
8.3 %
9.1 %
2Q15 3Q15E
4Q15E
24
-43
-40
29
26
14
68
88
95
26
4
16
30
29
13
2.8 %
-7.2 %
-5.4 %
3.2 %
3.2 %
1.5 %
5.4 %
6.1 %
6.3 %
7.9 %
1.3 %
5.0 %
7.5 %
8.2 %
3.7 %
Net finance
12
10
10
15
9
9
7
5
4
0
3
0
3
1
1
PTP
12
-53
-50
14
17
4
61
82
91
26
1
16
27
28
12
5
13
13
3
7
2
9
22
23
7
-6
5
8
7
3
Out Shares (mill)
17.2
17.2
17.2
25.8
25.8
25.8
25.8
25.8
25.8
25.8
25.8
25.8
25.8
25.8
25.8
EPS
0.41
-3.83
-3.66
0.43
0.39
0.09
2.04
2.32
2.63
0.71
0.27
0.42
0.77
0.82
0.34
EPS adj
0.41
-3.83
-3.66
0.43
0.39
0.09
2.04
2.32
2.63
0.71
0.27
0.42
0.77
0.82
0.34
0
0
0
0
0
0
1.0
1.5
1.5
348
255
306
520
504
349
504
547
493
0
0
Fixed assets
295
284
297
290
279
307
354
356
365
321
354
352
351
354
356
Calc. Tax
DPS
Order backlog
Current assets
380
326
399
433
395
414
549
699
739
514
549
590
655
690
699
Bent Rølland
Fondsfinans AS
TEL: +47 23 11 30 27
[email protected]
Net WC
278
230
278
347
316
271
126
155
150
100
126
137
145
155
155
NIBD
178
146
185
176
129
110
89
52
2
45
89
82
76
61
52
0.7
0.6
0.5
Philip M. Scrase
Fondsfinans AS
TEL: +47 23 11 30 23
[email protected]
EV/Sales
EV/EBITDA
8.1
6.2
5.5
EV/EBIT
12.4
9.2
7.9
P/E
12.2
9.1
8.2
P/B
1.9
1.6
1.5
AKVA Grouup ASA – Com
mpany Update
e
Overview
w of AKV
VA Group
AKVA feediing system
Company overview
AKVA Group is a le
eading techn
nology and service parttner to the aquaculture
industry and is prese
ent in all ma
ajor farming regions worlld-wide. The company’s
three seg
gments offe
er a broad range
r
of pro
oducts and services forr the entire
farming value chain
n from Lan
nd Based Technologies
T
s (LBT), Cage Based
Technolo
ogies (CBT) and Softw
ware (SW). The compaany has offiices in ten
countries
s.
AKVA feed platform
AKVA is in possessio
on well-know
wn brands, an
nd the producct includes fe
eed barges,
steel and
d plastic se
ea water cag
ges, off-shore feeding ssystems and
d fish nets.
Further, the companyy supports the
t
industry by net cleanning, underw
water lights,
feed cam
meras, enviro
onmental sensors and process
p
contrrol by softwa
are solution
and work
kboat deliveriies.
The acqu
uisition of A
Aquatec Solutions A/S
With the acquisition of Aquatec Solutions A/S
A in Denm
mark at the end of 3Q,
AKVA grroup is stre
engthening its position within the l and-based aquaculture
segment. In connectiion with the acquisition, the AKVA C
CEO said to Norwegian
media th
hat the com
mpany wants
s to be the
e largest plaayer within land-based
aquacultu
ure technolo gy. The purc
chase price for
f 100% of tthe shares in
n Aquatec is
DKK 35m
m. In addition
n there is an
n earn-out ba
ased on 20115 and 2016
6, where the
net prese
ent value is e
estimated to DKK 21.6m according too AKVA. Aquatec has 25
full-time employees
e
in
n Denmark, and
a a furtherr 19 in Chile..
According
g to AKVA, A
Aquatec Solu
utions had gross earninggs of DKK 11.6 million in
2014 (20
013: DKK 9.4
4 million), prrofits of DKK
K 3.4 million (2013: DKK 2.1 million)
and total assets of DK
KK 39.3 million (2013: 16
6.8 million).
The acqu
uisition is fin
nanced with a bank loan. Our currennt P&L estim
mates do not
include Aquatec
A
num bers, as we will await the
e 3Q report.
While AK
KVA is clearrly leading within
w
sea-ba
ased technoloogy, the pos
sition in the
land-base
ed segmentt is weakerr, despite previous
p
acqquisitions. The
T
market
remains competitive, and the com
mpany’s market share hhas remained
d moderate.
The Aqua
atec acquisittion seems like an attracttive platform for taking a significantly
stronger position in a growing market, and could clearly be value en
nhancing for
the comp
pany.
Nordics dom
minate.
Moderate C
Chile
exposure
The table
es below illu
ustrate 2015
5E revenues
s and EBITD
DA split by region. The
Nordic co
ountries stan
nd for around
d 68% of group revenuess. Exposure to
t Chile has
remained
d moderate , which ha
as been advantageouss through the recent
challenging years. G
Going forwarrd, however,, Chile shouuld potentially be more
interestin
ng again.
At 2Q15 the companyy indicated th
hat it will be reducing its Chilean exposure going
forward, due
d to the ch
hallenging co
onditions for farmers in thhe region.
“Aquaculturre technologyy
and service
e partner”
Page 70
Business
s model: Inttegrated full service pro
ovider
AKVA group’s strate
egy is to be
b an integrated full sservice provider to the
aquacultu
ure industry.. Over time,, AKVA is experiencing increasing demand for
professio
onal service and preven
ntive mainten
nance due to the growing installed
base of evermore
e
advvanced equip
pment in the industry.
5 October 2015
Fondsfina
ans Research
h
AKVA Group
p ASA – Comp
pany Update
Stricter regu
ulations drive
e
investmentss
Stricter re
egulations w
with regards to i.a. food safety and rrisk of fish escapes and
environm
mental impacct imply an increasing need for i nvestments in modern
farming technology.
Dependent on capex
budgets.
s aggregate
The company’s markket is largely dependent on the farmiing industry’s
udgets. Conssequently, re
evenues and
d earnings teend to be qu
uite volatile.
capex bu
According
g to AKVA currently arround 75% of
o revenues are related to farming
capex, while
w
the rem
mainder is based
b
on ru
unning opex,, which has more of a
recurring nature. AKV
VA pursues a strategy off absolute annd relative grrowth within
the recurrring segmen
nts in order to
t generate more
m
stable earnings tha
an what has
historically been the case. The CEO stresse
es that this would imply
y being less
exposed to the volattile earnings in the salmon farming iindustry, which is a key
capex driver, and m
more geare
ed towards the daily ruunning of the
t
farming
customerrs’ businesse
es.
Aiming to in
ncrease
recurring re
evenues from
m
the current 25%
Bundled ren
ntal and
service mod
del
At 3Q14 the compa
any announc
ced the laun
nch of a renntal busines
ss model in
Norway, offering cusstomers the alternative to
o rent equippment and in
nfrastructure
rather tha
an outright ccapex investm
ments. The business
b
moddel is based on monthly
rental payments that include both
h equipment and bundledd services, where
w
AKVA
provides both installa
ation and maintenance.
This is a model that works well in other of AKVA’s
A
markkets, and in Norway the
company
y will start witth AKVAsma
art products like
l
i.a. cameeras and ligh
hts, but over
time we expect
e
heavi er infrastructture to be offfered in the rrental busine
ess model.
Rental ag
greements w
will be for a limited length
h of time, typpically three, four or five
years, an
nd the comp
pany states that it has the financiaals in place to increase
volumes in this busin
ness going fo
orward. So fa
ar, the rentaal business re
emains at a
very mod
derate level.
Three busin
ness areas
The AK
KVA Group
p business areas
The company reportss on three se
egments cov
vering the farrming value chain; Land
Based Technologies
T
s (LBT), Cage Based Technologies
T
s (CBT) an
nd Software
(SW). Be
elow is a brie
ef overview of the segmen
nts and our eestimates.
Cage based
d
technologie
es is the
dominant bu
usiness
area, both b
by revenue
and EBITDA
A
Cage Ba
ased Techno
ologies (CBT
T)
The world’ss largest
player within
n sea water
cage based
d farming
AKVA is the world’s la
argest playe
er within sea water cage bbased farmin
ng, covering
a full pro
oduct and se
ervice range, as illustrate
ed below. Inn Norway, th
he transition
from stee
el cages to p
plastic is morre or less fullly implementted, whereas
s steel pens
remain prevalent in C
Chile. Over time, we expe
ect increasedd use of plas
stic cages to
generate further busiiness opporttunities in this region, thhough we ex
xpect to see
little dev
velopment in
n the short run due to long-runninng financial constraints
among many
m
Chilean
n players.
5 October 2015
Page 71
AKVA Group ASA – Company Update
AKVA is the market
leader within i.a. feed
barges. Full product and
service offering
AKVA is the market leader within feed barges, and the company supplies barges
integrated with feeding systems, generators, control room, living quarters, safety
equipment, silage systems, cameras and sensors.
The tables below give an overview of our AKVA CBT estimates and historical
numbers.
Stable EBITDA margin
of around 9% in 2015
and 2016. Volumes
likely to come
somewhat down in 2016
2012
2013
Nordic
265
404
Americas
303
173
Export operating revenues
90
148
Revenues CBT
658
725
Operation cost
636
694
EBITDA 22
31
EBITDA‐margin
3 %
4 %
Depreciation
27
26
Segment EBIT
‐5
5
EBIT‐margin, %
‐1 %
1 %
*) including YesMaritime 100% from 2Q14
1Q14
2Q14
Nordic
155
160
Americas
24
47
62
32
Revenues CBT
241
239
Operation cost
215
218
EBITDA 26
21
EBITDA‐margin
11 %
9 %
Depreciation
6
6.7
Segment EBIT
20
14
EBIT‐margin, %
8 %
6 %
*) including YesMaritime 100% from 2Q14
3Q14
185
54
31
270
238
32
12 %
7
25
9 %
2014
641
175
157.6
973
885
89
9 %
27
62
6 %
4Q14
141
50
33
223
214
10
4 %
7
3
1 %
1Q15
156
64
39
259
236
23
9 %
7.6
15
6 %
2015E
727
228
157
1112
1008
104
9 %
32
72
6 %
1Q15E
168
29
53
250
228
22
9 %
7
15
6 %
2016E
786
213
160.14
1160
1054
106
9 %
36
71
6 %
1Q15
156
64
39
259
236
23
9 %
7.6
15
6 %
2Q15
196
66
54
315
283
33
10 %
7.9
25
8 %
3Q15E
205
52
31
288
255
33
12 %
7.9
25
9 %
4Q15E
171
47
33
250
235
15
6 %
8.9
6
2 %
Land Based Technologies (LBT)
In recent years, AKVA has launched new technologies for land based smolt
plants. The use of increasingly large tanks facilitates both cost savings and
production of larger and more homogenous smolt.
The LBT segment includes recirculation and flow through smolt plants as well as
systems for land based farming. AKVA delivers everything from single
components to complete solutions, including design and engineering. In 1Q 2013
AKVA strengthened its position through the acquisition of 70% of Plastsveis AS,
with expertise within the construction of land based facilities.
Page 72
5 October 2015
Full service and
equipment provider also
for land-based
operations
Large smolt strategy
driving land-based
capex
AKVA maintains a positive outlook for the land based segment, pointing to a
growing prospect mass in several market segments, in particular for within
salmon. While AKVA has made sensible acquisitions, the market remains
competitive, and the company’s market share has remained moderate. The
Aquatec acquisition seems like an attractive platform for taking a significantly
stronger position in a growing market.
We expect the land based segment growth to be fuelled by growth in northern
Norway and the need to control biological risk in Norway in general. The trend
towards larger smolt continues. Restrictions on transport of smolt imply increased
need for locally produced smolt. We also see a need for improved smolt
infrastructure in mid Norway, and we should see more investments over time.
In southern Norway, the industry is already well covered with modern flowthrough smolt plants. As seawater license capacity is set to grow only very
moderately in Norway in the coming years, increased use of large smolt is likely
to trigger further capex.
In the UK we expect smolt capex to come up, driven by the need to replace lochbased smolt with modern land based technology. In Chile, AKVA takes a
cautious approach, and at 2Q15 indicated reduced activity.
The tables below sum up LBT estimates and historical data.
Margins expected to
improve, but still at
moderate levels
2012
2013
Nordic
40
92
Americas
12
5
0
0
Revenues LBT
52
97
Operation cost
57
100
EBITDA ‐5
‐3
EBITDA‐margin
‐10 %
‐3 %
Depreciation
2
2
Segment EBIT
‐7
‐5
EBIT‐margin, %
‐14 %
‐5 %
*) Including Plastsveis AS 70%, from 2Q13
5 October 2015
2014
157
9
0
166
166
0
0 %
2
‐2
‐1 %
2015E
179
9
0
188
178
9
5 %
2
7
4 %
2016E
205
21
0
226
210
16
7 %
2
13
6 %
Page 73
Nordic
Americas
Revenues LBT
Operation cost
EBITDA EBITDA‐margin
Depreciation
Segment EBIT
EBIT‐margin, %
1Q14
41
2
0
43
41
3
6 %
0
2
5 %
2Q14
36
1
0
37
37
0
1 %
0
0
0 %
3Q14
31
3
0
34
37
‐2
3 %
1
‐3
‐8 %
4Q14
49
3
0
52
53
‐1
3 %
1
‐1
‐2 %
1Q15
34
1
0
35
36
‐1
3 %
1
‐1
‐3 %
1Q15E
46
5
0
51
48
4
7 %
1
3
6 %
1Q15
34
1
0
35
36
‐1
3 %
1
‐1
‐3 %
2Q15
54
2
0
55
52
3
7 %
1
3
5 %
3Q15E
36
3
0
39
37
3
7 %
1
2
5 %
4Q15E
55
3
0
58
54
4
7 %
1
3
6 %
Software (SW)
Integrated proprietary
Akva Group software
AKVA Group offers integrated proprietary software for the entire farming cycle,
including production control and planning, feeding, financial simulation and
reporting. The software covers all needs for process control, production control,
reporting and planning.
AKVA has a strong position within production and reporting software, with i.a.
contracts with Lerøy and Grieg Seafood being disclosed. We consider the
software segment to offer attractive growth potential driven by increased control
needs in complex farming operations as well as stricter governmental reporting
regimes related to i.a. sea lice.
Software (NOK m)
2012*
2013
Nordic
103
79
Americas
18
17
2
2
Revenues Software
123
98
Operation cost
80
78
EBITDA 43
20
EBITDA‐margin
35 %
20 %
Depreciation
2
5
EBIT
41
15
EBIT‐margin, %
33 %
15 %
Page 74
5 October 2015
2014
87
18.5
2
107
91
16
15 %
10
6
5 %
2015E
97
23.2
2
123
106
16
13 %
9
8
6 %
2016E
102
23.664
2
128
112
16
12 %
9
7
6 %
Software (NOK m)
1Q14
2Q14
3Q14
Nordic
22
20
20
Americas
4
5
5
1
0
1
Revenues Software
26
26
26
Operation cost
23
23
20
EBITDA 3
3
5
EBITDA‐margin
11 %
13 %
21 %
Depreciation
2
2
5
EBIT
1
2
1
EBIT‐margin, %
4 %
6 %
2 %
4Q14
25
5
1
30
25
4
14 %
2
2
8 %
1Q15
25
5
1
31
26
4
14 %
2
2
6 %
1Q15E
27
5
1
33
28
4
16 %
2
2
8 %
1Q15
25
5
1
31
26
4
14 %
2
2
6 %
2Q15
24
6
1
31
26
5
15 %
2
2
8 %
3Q15E
24
6
1
31
27
4
16 %
2
2
5 %
4Q15E
24
6
1
30
27
4
16 %
2
2
5 %
Stricter regulations in Norway lowering aquaculture growth, but could lead
to need for improved equipment and infrastructure
Green licenses: We
expect NOK 200-250m
sea water capex. AKVA
well positioned
The 45 green licenses that are being granted in Norway, in addition to general
5% increase in MAB that is being offered by the Norwegian Government trigger
investment needs in order to accommodate new capacity and stricter criteria on
sea lice, escapes etc. This is attractive for AKVA both in terms of the need for
new smolt investments and for the cage based segment.
AKVA has developed an EcoNet product that reduces the risk of escapes as well
as simplifying maintenance and cleaning. Cermaq has already implemented
EcoNets on a commercial scale, while other players such as NovaSea have been
running trials. Sea lice skirts are also a part of the potential solution to the sea
lice issues.
AKVA SOTP valuation
We estimate the EBITDA margin to stabilize at around 9% in 2015 and 2016,
whereas the company targets 10%. We calculate EPS adj. of around NOK 2.3
and 2.6 in 2015E and 2016E respectively. Our SOTP values AKVA to NOK 39
per share. We maintain our BUY recommendation.
The table below sums up our SOTP valuation of AKVA Group.
SOTP = NOK 39
(34)/share
BUY recommendation
SOTP AKVA Group
EV/EBITDA EBITDA16
Sea water/cages
6.5
106
Software
8.5
16
Smolt /On‐shore
8.0
16
Dividend not paid (Dec14, 2015 and 2016)
EV ex Aquatec
138
NIBD 2015E incl Aquatec obligations
Asset values
Aquatec purchasing price
Aquatec earn‐out NPV
Outst shares
AKVA value per share
5 October 2015
Value
690
135
126
114
1065
123
942
44
27
25.8
39
Page 75
Risk assessment of AKVA Group ASA
AKVA is highly exposed to the farming industry CAPEX, which historically has
been rather volatile/cyclical. AKVA Group is taking measures to increase its
exposure to customer OPEX (more stable). We expect industry volatility to come
down ahead as the industry is close to full capacity utilisation. One of few growth
options is to increase capex per kg fish in order to increase productivity (yield).
Fish diseases are a recurring issue in the aquaculture industry. Major disease
outbreaks could cause significant losses, in turn reducing CAPEX budgets and
increasing credit risk for AKVA.
While AKVA has significant proprietary technology, new competitors may enter
the market, including companies based in low cost countries, putting margins
under pressure. Consolidation would have the opposite effect.
Page 76
5 October 2015
Buy
Neutral
Sell
Low risk: min -5%. Medium risk: -min 10%. High risk: -min 20%.
Recommendation
Buy
Neutral
Sell
Total
Recommendation
Buy
Neutral
Sell
Total
No
45
9
12
66
Percent
68 %
14 %
18 %
100 %
No
3
0
0
3
Percent
7%
0%
0%
The analysts receive compensation that is impacted by overall firm profitability, including investment banking activities.
This report is an initiation of coverage with a BUY-recommendation.
Ownership per 28.09.15 in AKVA Group:
Fondsfinans may hold shares in AKVA Group as a result of daily trading/market making. Information on such holdings is not given
when of non-significant value.
Fondsfinans is not acting as market maker in AKVA Group. Fondsfinans has not acted as corporate adviser, lead manager in IPO etc.
during the past 12 months.
DISCLAIMER
5 October 2015
Page 77
Akva Group ASA
+ 23113027
Sector:
Aquaculture
Price (NOK):
29.0
Shares outst.:
25.8m
Date:
05.okt.15
17.2
Market cap (NOKm):
749
Next result:
05.nov.15
Equity ratio:
43 %
52
Target
39
10.06
801
Recommendation:
BUY
P&L (MNOK)
Total revenues
Operation costs
EBITDA
EBITDA‐margin,%
Depreciation
EBIT
EBIT‐margin,%
Net finance
Result before tax
Calc. tax
Result after tax
Outst. shares (m)
EPS
EPS adj
DPS
ROE
ROCE
Multiples:
EV/Sales
EV/EBITDA
EV/EBIT
P/E adj
P/B
Nordic
Americas
Revenues CBT
Operation cost
Depreciation
Segment EBIT
EBIT‐margin, %
Software (NOK m)
Nordic
Americas
Revenues Software
Operation cost
Depreciation
EBIT
Nordic
Americas
Revenues LBT
Operation cost
Depreciation
Segment EBIT
Balance sheet
Fixed assets
Current assets
Total assets
Total equity
Long term debt
Short term debt
Total liabilities
Cash flow from op. Net investments
Net financials
OP CF/share ‐ investments
Cash flow, period
Cash, end period
OSEAX:
0.0268
2011
2012
2013
12 months High/Low: 09/ 02/ 34
2014
2015E
2016E
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15E
4Q15E
894
832
62
7 %
33
29
3 %
15
14
3
11
25.8
0.43
0.43
0.00
2 %
7 %
831
774
57
7 %
31
26
3 %
9
17
7
10
25.8
0.39
0.39
0.00
2 %
7 %
917
871
46
5 %
33
14
1 %
9.2
4.3
2
2.3
25.8
0.09
0.09
0.00
0 %
4 %
1 246
1 143
103
8 %
36
68
5 %
6.547
61
9
53
25.8
2.04
2.04
1.00
7 %
15 %
1 423
1 293
130
9 %
43
88
6 %
5.3
82
22
60
25.8
2.32
2.32
1.50
7 %
18 %
1 513
1 376
138
9 %
43
95
6 %
4
91
23
68
25.8
2.63
2.63
1.50
7 %
19 %
301
277
24
8 %
9
15
5 %
0
15
3
13
25.8
0.49
0.49
330
295
35
11 %
9
26
8 %
0.34
26
7
18
25.8
0.71
0.71
305
292
13
4 %
10
4
1 %
3.207
1
‐6
7
25.8
0.27
0.27
325
298
27
8 %
11
16
5 %
0.4
16
5
11
25.8
0.42
0.42
402
361
41
10 %
11
30
8 %
2.9
27
8
20
25.8
0.77
0.77
358
318
40
11 %
11
29
8 %
1
28
7
21
25.8
0.82
0.82
339
316
23
7 %
11
13
4 %
1
12
3
9
25.8
0.34
0.34
0.5
7.2
15.9
28.4
0.9
2012
265
303
90
658
636
22
3 %
27
‐4.5
‐1 %
0.4
8.6
29.7
126.4
0.9
2013
404
173
148
725
694
31
4 %
26
5
1 %
0.7
8.1
12.4
12.2
1.9
2014
641
175
158
973
885
89
9 %
27
62
6 %
0.6
6.2
9.2
9.1
1.6
2015E
727
228
157
1112
1008
104
9 %
32
72
6 %
0.5
5.5
7.9
8.2
1.5
2016E
786
213
160
1160
1054
106
9 %
36
71
6 %
2Q14
160
47
32
239
218
21
9 %
7
14
6 %
3Q14
185
54
31
270
238
32
12 %
7
25
9 %
4Q14
141
50
33
223
214
10
4 %
7
3
1 %
1Q15
156
64
39
259
236
23
9 %
8
15
6 %
2Q15
196
66
54
315
283
33
10 %
8
25
8 %
3Q15E
204.8
52
31
288
255
33
12 %
8
25
9 %
4Q15E
171
47
33
250
235
15
6 %
9
6
2 %
103
18
2
123
80
43
35 %
2
41
79
17
2
98
78
20
20 %
5
15
87
19
2
107
91
16
15 %
10
6
97
23
2
123
106
16
13 %
9
8
102
24
2
128
112
16
12 %
9
7
20
5
0
26
23
3
13 %
2
2
20
5
1
26
20
5
21 %
5
1
25
5
1
30
25
4
14 %
2
2
25
5
1
31
26
4
14 %
2
2
24
6
1
31
26
5
15 %
2
2
24
6
1
31
27
4
16 %
2
2
24
6
1
30
27
4
16 %
2
2
40
12
0
52
57
‐5
‐10 %
2
‐7
92
5
0
97
100
‐3
‐3 %
2
‐5
157
9
0
166
166
0
0 %
2
‐2
179
9
0
188
178
9
5 %
2
7
205
21
0
226
210
16
7 %
2
13
36
1
0
37
37
0
1 %
0
0
31
3
0
34
37
‐2
3 %
1
‐3
49
3
0
52
53
‐1
3 %
1
‐1
34
1
0
35
36
‐1
3 %
1
‐1
54
2
0
55
52
3
7 %
1
3
36
3
0
39
37
3
7 %
1
2
55
3
0
58
54
4
7 %
1
3
2011
2012
2013
2014
2015E
290
433
723
323
112
287
722
‐36
‐28
57
‐2.48
‐7
37
279
395
674
326
70
278
674
73
‐34
‐39
1.51
0
37
307
414
721
337
56
326
718
95
‐59
‐15
1.40
21
58
354
549
903
388
131
383
902
86
‐66
‐24
0.77
‐4
54
356
699
1055
455
130
469
1054
89
‐52
1
1.44
38
92
2016E AKVA Group shareholders
365 Egersund Group
739 MP Pensjon
1104 DNB SMB
509 EIKA Norge
130 Statoil Pensjon
464 Rogaland Sjø AS
1103 Ole Molaug Eiendom AS
140 Nordea kapital
‐52 Mertoun Capital
‐39 SIX SIS
3.42 EIKA Alpha
50 Bjørn Dahle
142 Total shares
No of shares
% outst shares
13 203 105
693 800
490 000
489 417
398 914
343 550
338 692
301 700
300 000
270 000
208 100
196 300
25 834 303
51.1 %
2.7 %
1.9 %
1.9 %
1.5 %
1.3 %
1.3 %
1.2 %
1.2 %
1.0 %
0.8 %
0.8 %
100 %

Aquaculture Sector Report

Transcription

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