Investments In Smolt Programs Will Boost Productivity And Operational Efficiency

Key Takeaways

• Strategic acquisitions and investments are expected to enhance efficiency and margins, significantly boosting profitability.
  
• Cost reduction measures and production capacity expansion aim to support growth and improve revenue and earnings.
  
• Potential tariffs, biological challenges, and strategic risks could disrupt Mowi's operational costs, profit margins, and overall financial stability.

Catalysts

A seafood company, farms, produces, and supplies Atlantic salmon products worldwide.

• The acquisition of Nova Sea is expected to bring significant synergies across the value chain, including enhanced biological performance and reduced costs, potentially improving net margins.
  
• The increased harvest volume target, already at 600,000 tonnes for next year, indicates strong growth prospects, likely impacting revenue positively.
  
• The strategic investment in smolt and post-smolt programs is set to enhance productivity and operational efficiency, potentially boosting earnings.
  
• Ongoing cost reduction measures, including a focus on feed cost declines and productivity improvements, are positioned to favorably influence net margins and overall profitability.
  
• The expansion of Mowi Feed, including a new feed capacity in Norway, supports future volume growth and cost efficiency, potentially contributing positively to earnings.

Mowi Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Mowi's revenue will grow by 8.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.4% today to 13.7% in 3 years time.
• Analysts expect earnings to reach €979.4 million (and earnings per share of €1.87) by about March 2028, up from €468.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €1.2 billion in earnings, and the most bearish expecting €855 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.0x on those 2028 earnings, down from 19.7x today. This future PE is lower than the current PE for the GB Food industry at 21.0x.
• 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 5.94%, as per the Simply Wall St company report.

Mowi Future Earnings Per Share Growth

Risks

• Potential tariffs on Canadian salmon imports into the U.S. could disrupt sales and distribution, affecting Mowi’s revenues and profit margins.
  
• Issues such as string jellyfish and gill problems in Region Mid of Norway may lead to increased operational costs and reduced biomass, negatively impacting net margins.
  
• Biological challenges in Mowi Ireland, including Rickettsia, resulted in low harvest volumes and financial losses, which could continue to strain earnings if not resolved.
  
• The impairment of licenses in Canada West due to governmental changes creates uncertainty in production capabilities, potentially affecting future revenue and asset valuations.
  
• Mowi’s expansion and acquisition strategies, such as Nova Sea, increase financial leverage and carry risk of integration challenges, possibly affecting net earnings and financial stability.

Valuation

• The analysts have a consensus price target of NOK220.768 for Mowi based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NOK251.24, and the most bearish reporting a price target of just NOK187.84.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €7.1 billion, earnings will come to €979.4 million, and it would be trading on a PE ratio of 12.0x, assuming you use a discount rate of 5.9%.
• Given the current share price of NOK206.0, the analyst price target of NOK220.77 is 6.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.