Rising Salmon Volumes And Lower Costs Will Support Stronger Long Term Earnings Potential

Catalysts

About Icelandic Salmon

Icelandic Salmon is a fully integrated salmon farmer in Iceland, operating from smolt production through sea farming, harvesting and global sales.

What are the underlying business or industry changes driving this perspective?

• Ramp up toward 21,000 tonnes in 2026 on existing licenses, supported by all time high smolt releases and close to full MAB utilization, should lift revenue meaningfully as volumes grow faster than fixed costs.
• Improving biology in sea, higher water temperatures and lower feed prices are expected to reduce production cost per kilo, supporting a recovery in net margins and operating earnings as the high cost 2023 generation rolls out of the biomass.
• Better capacity utilization of harvesting and well boat infrastructure, already largely in place up to 26,000 tonnes, should dilute fixed costs per kilo and enhance EBITDA and EBIT as volumes scale without matching CapEx growth.
• Expanding exposure to premium export markets such as North America and Asia, combined with consistently strong price achievement versus market, positions the company to capture higher average selling prices and strengthen revenue and gross margins.
• Potential regulatory support for sustainable aquaculture expansion in Iceland, including pending applications for additional MAB and site extensions, could unlock further volume growth beyond current guidance and drive long term earnings and cash flow upside.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Icelandic Salmon's revenue will grow by 27.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from -30.9% today to 11.9% in 3 years time.
• Analysts expect earnings to reach €23.9 million (and earnings per share of €0.57) by about December 2028, up from €-29.9 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 11.9x on those 2028 earnings, up from -6.9x today. This future PE is lower than the current PE for the NO Food industry at 26.5x.
• 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 6.34%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Persistent global oversupply of salmon and continued strong sea salmon volumes could keep market prices structurally lower for longer. This could limit the benefit of Icelandic Salmon's planned volume growth and constrain revenue and gross profit.
• Escalation or long-term persistence of the 15% United States tariffs, or broader trade barriers in key export markets such as North America and Asia, could erode the company's premium price achievement and reduce revenue and net margins from these higher value regions.
• High production taxes in Iceland, combined with any future increase in tax burden as part of a new aquaculture law, could structurally raise the company's cost base and limit recovery in operating earnings and free cash flow.
• Elevated leverage, ongoing operational losses and dependence on covenant waivers and amended loan terms could restrict financial flexibility. This could force reduced investment or equity dilution and thereby weigh on earnings growth and shareholder returns.
• Regulatory uncertainty around new aquaculture legislation, maximum allowed biomass and pending MAB applications could delay or cap expansion to 21,000 to 26,000 tonnes. This could undermine scale benefits and keep revenue growth and EBIT below expectations.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of NOK90.0 for Icelandic Salmon based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be €201.1 million, earnings will come to €23.9 million, and it would be trading on a PE ratio of 11.9x, assuming you use a discount rate of 6.3%.
  
• Given the current share price of NOK78.0, the analyst price target of NOK90.0 is 13.3% 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.