Rising Regulations And High Capital Demands Will Cripple Krill Supply

Key Takeaways

• Stricter environmental regulations and shifting consumer preferences toward sustainable alternatives threaten both raw material supply and long-term market demand.
  
• Heavy reliance on krill products and high capital requirements expose the company to financial risk and pressure on profitability.
  
• Expanding premium offerings, geographic diversification, and operational improvements are driving sustainable profitability, revenue stability, and long-term earnings growth for Aker BioMarine.

Catalysts

A biotech innovator, develops and supplies krill-derived products for consumer health and wellness worldwide.

• Increased global regulatory scrutiny on marine resource extraction, especially in fragile ecosystems like Antarctica, could result in stricter quotas or outright harvesting bans for krill. This would directly threaten Aker BioMarine's raw material supply, severely restricting future revenue growth and potentially causing significant volatility in earnings due to unpredictable supply shocks.
  
• The rising momentum behind plant-based and algal-derived alternatives is threatening long-term demand for animal
• and marine-based omega-3s. If consumers and regulators increasingly favor substitutes with better sustainability profiles, Aker BioMarine's addressable market could contract, eroding revenue and undermining projected top-line growth.
  
• Continued advocacy against overfishing and marine ecosystem exploitation has the potential to drive negative public perception and heightened regulatory costs. As a result, Aker BioMarine may face a persistent squeeze on net margins, as compliance expenses grow and potential restrictions on krill harvesting further impact profitability.
  
• The company's high capital intensity and extensive investments in fleet modernization, processing facilities, and sustainability programs create an ongoing need for significant capital expenditures. This, combined with leverage levels over four times EBITDA, could materially constrain free cash flow, limiting flexibility to invest in growth or respond to adverse regulatory changes.
  
• With revenue streams still highly concentrated in krill-based omega-3s and additives, Aker BioMarine remains vulnerable to reputational, regulatory, or scientific disruptions that could rapidly commoditize its products, compress average selling prices, and sharply reduce both operating margins and earnings visibility.

Aker BioMarine Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Aker BioMarine compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Aker BioMarine's revenue will grow by 11.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -6.3% today to 13.9% in 3 years time.
• The bearish analysts expect earnings to reach $39.6 million (and earnings per share of $0.45) by about July 2028, up from $-13.1 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 bearish analyst cohort, the company would need to trade at a PE ratio of 10.2x on those 2028 earnings, up from -54.3x today. This future PE is lower than the current PE for the NO Food industry at 22.2x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.12%, as per the Simply Wall St company report.

Aker BioMarine Future Earnings Per Share Growth

Risks

• The company has delivered nine consecutive quarters of growth, with the most recent quarter seeing 12 percent revenue growth and a 41 percent EBITDA increase, suggesting strong underlying demand and operational leverage that could continue to support earnings and share price over the long term.
  
• Aker BioMarine is showing particular strength in its Human Health Ingredients segment, recording robust growth across regions such as China and Asia Pacific, and achieving near 50 percent EBITDA margins, which points to sustainable profitability and ongoing improvement in net margins.
  
• The company is actively expanding into premium and innovative products like Lysoveta and has successfully implemented price increases and product mix enhancements that support higher average selling prices and gross margins, contributing positively to future revenue and earnings potential.
  
• Geographic and customer base diversification has reduced risk, with no customer now accounting for more than 10 percent of total revenue and regional sales well-balanced across the US, Europe, Asia, and China, enhancing revenue stability and reducing volatility in cash flows.
  
• Ongoing investments in process efficiency, restructuring, and innovation-including the relaunch of the algae business with improved quality-are positioning Aker BioMarine for future cost reductions and top-line growth, further supporting long-term operating earnings and free cash flow.

Valuation

• The assumed bearish price target for Aker BioMarine is NOK48.82, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Aker BioMarine's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NOK75.11, and the most bearish reporting a price target of just NOK48.82.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $285.0 million, earnings will come to $39.6 million, and it would be trading on a PE ratio of 10.2x, assuming you use a discount rate of 6.1%.
• Given the current share price of NOK81.8, the bearish analyst price target of NOK48.82 is 67.6% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.