Land Based Salmon Refinancing And Local Demand Will Drive Future Operational Upside

Catalysts

About Proximar Seafood

Proximar Seafood produces high quality Atlantic salmon through land based farming in Japan, supplying the domestic and wider Asian markets.

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

• Completion of refinancing, lower interest costs and extended maturities should reduce financial risk and interest expenses. This is expected to support a quicker path toward positive EBITDA and earnings.
• Returning growth performance and plans to reach around 2,000 tonnes of standing biomass by year end are set to lift harvest volumes and move average harvest weight above 3 kilograms. This is expected to directly support higher revenue and improved gross margins.
• Japan’s structurally strong demand for Atlantic salmon, combined with stable local price levels above global export prices, positions Proximar as a local cost efficient supplier. This supports pricing power and long term revenue potential.
• Technical and operational improvements in feeding systems, cooling capacity and culling strategy are expected to reduce feed spill and biological risk. This is intended to enhance biological asset efficiency and support higher net margins over time.
• First mover status as the only local Atlantic salmon producer in Japan, together with growing interest in land based production and potential Stage 2 expansion in Asia, could unlock scale benefits and operating leverage. This may support higher earnings from 2027 onward.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Proximar Seafood's revenue will grow by 88.5% annually over the next 3 years.
• Analysts are not forecasting that Proximar Seafood will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Proximar Seafood's profit margin will increase from -342.3% to the average NO Food industry of 10.2% in 3 years.
• If Proximar Seafood's profit margin were to converge on the industry average, you could expect earnings to reach NOK 55.6 million (and earnings per share of NOK 0.29) by about December 2028, up from NOK -278.7 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting NOK153.9 million in earnings, and the most bearish expecting NOK6.2 million.
• 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 4.7x on those 2028 earnings, up from -0.8x today. This future PE is lower than the current PE for the NO Food industry at 26.8x.
• Analysts expect the number of shares outstanding to grow 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 10.61%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The company remains structurally sub scale for longer than planned, with standing biomass and harvest volumes repeatedly pushed into later years. This could delay revenue growth and keep unit costs elevated, limiting earnings improvement over the long term.
• Persistent challenges in achieving target harvest weights and a narrow share of fish above 3 kilograms HOG, combined with operational constraints such as capacity limits and complex harvest timing, could cap average selling prices and compress gross margins and EBITDA.
• Rising biological and climate related risks, including extreme heat events that strain cooling capacity and feeding systems, may increase volatility in growth rates and survival. This could lead to unstable production, higher operating costs and weaker net margins over time.
• A highly leveraged capital structure, even after refinancing, leaves limited room for further setbacks in ramp up. Any delay in achieving stable, higher volume operations could necessitate additional dilutive funding or more expensive debt, which would pressure earnings and equity value.
• Execution risk in scaling land based salmon farming at full capacity, including dependence on technical systems, working capital availability and management transition such as the CFO change, could prevent the company from reaching its planned 5,300 tonnes steady state. This would constrain long term revenue and profit growth.

Valuation

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

• The analysts have a consensus price target of NOK1.0 for Proximar Seafood 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 NOK544.9 million, earnings will come to NOK55.6 million, and it would be trading on a PE ratio of 4.7x, assuming you use a discount rate of 10.6%.
  
• Given the current share price of NOK0.67, the analyst price target of NOK1.0 is 32.6% 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.