Rising Global Protein Demand And RAS Expansion Will Transform Aquaculture

Key Takeaways

• Innovative solutions in sea farming and post-smolt technology could make AKVA an industry standard setter, driving market share gains and improved margins.
  
• Leadership in automation and digital integration positions AKVA to benefit from sustainability mandates, diversifying revenue streams and enhancing long-term earnings quality.
  
• Regulatory pressure, declining demand, over-reliance on volatile project sales, shifting consumer trends, and rising competition all threaten AKVA group's revenue stability and profitability.

Catalysts

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

• Analyst consensus expects the deep farming and Nautilus solutions to support revenue growth due to order backlog, but this may substantially understate their impact given the reported 80 to 90 percent reduction in sea lice treatments and consistent 90 percent+ fish quality, positioning AKVA to rapidly capture a disproportionate share of a five to six billion NOK addressable market and meaningfully increase both recurring revenues and gross margins in coming years.
  
• While analyst consensus believes post-smolt technology can enhance capacity and reduce mortality, current adoption trends and a validated capacity increase near or above 30 percent suggest AKVA is uniquely positioned to trigger a step-change in clients' production efficiency, potentially establishing a de facto industry standard that could accelerate EBITDA margin expansion beyond near-term consensus.
  
• AKVA group's accelerating momentum in land-based (RAS) projects, evidenced by EUR 30 million and EUR 20 million contracts recently secured and long-term target facilities like Laxey's 36,000-tonne site, signals an inflection point in long-cycle project awards that is likely to drive sustained multi-year backlog growth and revenue diversification well beyond what short-term order intake suggests.
  
• Surging regulatory requirements for sustainability, reduced mortality, and traceability are set to create a technology mandate across global aquaculture, and AKVA's leadership in monitoring, AI-driven automation, and digital integration (60 percent global share in ERP, clear leadership in AI feeding) makes it a prime beneficiary of industry-wide upgrades, which should unlock significant pricing power and incremental net margin improvement.
  
• The shift toward offshore and remote aquaculture will require robust, integrated automation-AKVA is uniquely positioned due to long-term investments in systems integration and scalable recurring digital services, supporting a higher mix of annuity-like revenues that will stabilize and grow earnings quality over the next cycle.

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 13.9% 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 314.9 million (and earnings per share of NOK 8.69) 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 18.6x on those 2028 earnings, down from 19.1x today. This future PE is lower than the current PE for the GB Machinery industry at 25.2x.
• Analysts expect the number of shares outstanding to decline by 0.16% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.3%, as per the Simply Wall St company report.

AKVA group Future Earnings Per Share Growth

Risks

• Heightened regulatory pressure and government efforts to bring down sea lice and mortality levels in aquaculture could increase compliance and technology development costs for AKVA group, potentially eroding net margins over time.
  
• AKVA group's revenue mix remains over-reliant on traditional project-based sales, which results in earnings volatility and could make it difficult to sustain stable top-line growth, especially as large contracts in regions like Chile are lumpy and subject to sharp fluctuations.
  
• There is increasing evidence of declining demand and order intake in certain regions, with Americas order intake for Sea Based products dropping by 53% and Digital segment revenues and order intake turning downward, both of which could negatively impact revenues and future earnings if not reversed.
  
• Long-term secular shifts, such as the movement towards plant-based diets and alternative proteins, risk dampening demand growth in aquaculture and could therefore negatively affect AKVA group's revenue prospects in their core business.
  
• Intensifying competition from low-cost international rivals and emerging aquaculture technologies such as land-based recirculating systems threaten to disrupt AKVA group's traditional market segments, leading to potential margin compression and market share loss, thus harming both revenue growth and net profit.

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 NOK5.5 billion, earnings will come to NOK314.9 million, and it would be trading on a PE ratio of 18.6x, assuming you use a discount rate of 8.3%.
• Given the current share price of NOK88.2, the bullish analyst price target of NOK128.0 is 31.1% 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.