Will Enter Premium Markets With ASC Certification

Key Takeaways

• Projected increased smolt production and salmon output aims to boost revenue and margins through efficiency and scale economies.
  
• ASC certification and euro-based reporting enhance market access and financial stability, improving revenue and earnings potential.
  
• Increasing liabilities and biological risks, alongside lowered production guidance and price decline, threaten revenue, margins, and financial health.

Catalysts

Ice Fish Farm AS engages in the salmon farming business in Iceland.

• Kaldvik is projecting a significant increase in its smolt production, aiming to produce and deliver around 7.5 million smolts per year with a higher average weight. This is expected to enhance future revenue as larger smolts will potentially lead to increased output and efficiency in the farming process.
  
• The company is planning to reach a milestone of 30,000 tonnes of salmon, supported by ongoing projects to produce bigger smolts and optimize production. Achieving this milestone is likely to boost both revenue and net margins through economies of scale and increased production efficiency.
  
• Kaldvik received ASC certification, which may allow the company to access premium markets and demand higher prices for its salmon, thereby potentially increasing revenue and improving net margins by catering to market segments that value sustainability.
  
• The transition of financial statements and functional currency to euros, combined with the company's significant share of revenue and expenses in euros, may enhance the accuracy of financial reporting and reduce currency risk, leading to more stable earnings.
  
• Forthcoming licenses, including the anticipated 10,000 tonnes license in Ísafjarðardjúp, present an opportunity for future capacity expansion, enabling increased production which is expected to positively impact revenue growth and long-term earnings potential.

Kaldvik Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Kaldvik's revenue will grow by 46.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.8% today to 19.0% in 3 years time.
• Analysts expect earnings to reach €48.6 million (and earnings per share of €0.39) by about January 2028, up from €1.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.7x on those 2028 earnings, down from 204.3x today. This future PE is lower than the current PE for the NO Food industry at 23.1x.
• Analysts expect the number of shares outstanding to grow by 0.22% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.49%, as per the Simply Wall St company report.

Kaldvik Future Earnings Per Share Growth

Risks

• Lowered production guidance for 2024 from 17,500 tonnes to 15,000 tonnes due to value chain capacity issues and delays in wellboat capacity could affect revenue and net margins.
  
• Price achievement declined from €7.3 to €6.2 per kilo in the quarter, which directly impacts revenue and earnings.
  
• Increase in total liabilities by €31 million due to CapEx and biological investments, and significant borrowing raises financial risk and potential interest expenses, impacting net margins and earnings.
  
• Detection of ISA disease in 2022, impacting harvest volumes, poses a biological risk that could affect production volumes and revenue stability.
  
• Dependence on achieving higher production milestones and implementing new strategies requires further CapEx, creating risk around cost management and potential impacts on margins if execution is ineffective.

Valuation

• The analysts have a consensus price target of NOK33.5 for Kaldvik based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €255.8 million, earnings will come to €48.6 million, and it would be trading on a PE ratio of 8.7x, assuming you use a discount rate of 6.5%.
• Given the current share price of NOK28.4, the analyst's price target of NOK33.5 is 15.2% 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.