Deep Farming And Nautilus Tech Will Fuel Aquaculture Expansion

Key Takeaways

• AKVA is well-positioned for rapid market expansion and revenue gains, driven by accelerated adoption of advanced aquaculture and digital technologies amid industry demand shifts.
  
• The company's global reach, scalable platforms, and acquisition strategy enable it to capture new markets and benefit from industry consolidation and biosecurity trends.
  
• Rising regulatory costs, operational inefficiencies, and industry challenges threaten AKVA group's margins, cash flow, and growth, while heightened competition and client concentration increase earnings volatility.

Catalysts

Designs, purchases, manufactures, assembles, sells, and installs technology products; and provides rental and consulting services for the aquaculture industry.

• Analyst consensus expects meaningful growth from Deep Farming and Nautilus tech, but with salmon producers facing mounting regulatory and environmental pressures alongside a proven ability to reduce sea lice treatments by up to 85%, these solutions could see much faster adoption and market penetration than anticipated, potentially unlocking revenue above even management guidance.
  
• While analysts broadly project strong earnings growth from post-smolt tech, this may be conservative given that post-smolt and land-based system adoption can materially raise overall salmon sector production capacity-by up to 35% according to AKVA's own figures-translating into outsized top-line gains and margin expansion versus existing consensus.
  
• Accelerating global demand for sustainable protein and chronic supply constraints in traditional salmon farming will likely drive a multi-year investment supercycle in next-generation aquaculture infrastructure, positioning AKVA group to capture an increasing share of wallet and driving double-digit revenue growth well into the next decade.
  
• With recent heavy investments in both digitalization and R&D largely complete and resulting platforms now field-proven and highly scalable, AKVA is on the verge of a structural margin inflection as operating leverage and high-margin digital sales kick in, significantly boosting EBIT and net margin trajectories.
  
• AKVA's unique global presence, first-mover advantage in key markets, and stated readiness to opportunistically acquire winning "shielded" or next-generation containment tech gives it the ability to rapidly scale into new verticals, facilitating step-changes in both addressable market and earnings potential as industry consolidation and biosecurity needs accelerate.

AKVA group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on AKVA group compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming AKVA group's revenue will grow by 14.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 4.5% today to 5.7% in 3 years time.
• The bullish analysts expect earnings to reach NOK 315.8 million (and earnings per share of NOK 8.71) by about August 2028, up from NOK 167.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 18.5x on those 2028 earnings, down from 20.8x today. This future PE is lower than the current PE for the GB Machinery industry at 36.7x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.2%, as per the Simply Wall St company report.

AKVA group Future Earnings Per Share Growth

Risks

• Intensifying global focus on ESG and sustainability regulations, as well as ongoing issues with industry "social license," could lead to stricter operational requirements and higher compliance costs, which may materially pressure AKVA group's net margins in the long run.
  
• Chronic issues with project execution and historical periods of unprofitability in the Land-Based segment indicate that recurring cost overruns, high R&D, and capex requirements could strain free cash flow and limit sustained growth in earnings.
  
• The salmon farming industry has experienced stagnating production growth recently due to fish health challenges and regulatory barriers in key markets like Norway, Chile, and Canada, which could reduce demand for AKVA group's primary containment and feeding equipment, negatively impacting revenue growth.
  
• Heightened competition in the digital segment, especially in decision-making cameras where AKVA admits it is still an "up runner" behind leading peers, suggests ongoing market share and pricing power risks that could restrict top-line expansion and compress profit margins.
  
• The company's high dependence on a limited number of large salmon farming clients, coupled with evidence of regional declines in revenue (notably in Europe and Americas), exposes AKVA group to earnings volatility if investment from these key customers slows or shifts to alternative suppliers or emerging aquaculture technologies.

Valuation

• The assumed bullish price target for AKVA group is NOK128.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of AKVA group's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NOK128.0, and the most bearish reporting a price target of just NOK80.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be NOK5.6 billion, earnings will come to NOK315.8 million, and it would be trading on a PE ratio of 18.5x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of NOK96.0, the bullish analyst price target of NOK128.0 is 25.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.