Integration With Wilsgård AS Will Expand Presence In Northern Norway

Key Takeaways

• Strategic investments in technology and fish welfare aim to boost biological performance, reduce costs, and improve net margins.
  
• Acquisitions and integration efforts support revenue growth through synergies, operational efficiencies, and expanded capacity.
  
• Environmental challenges and operational risks, coupled with cost inefficiencies and market volatility, threaten SalMar's revenue growth and financial stability.

Catalysts

An aquaculture company, produces and sells farmed salmon in Asia, North America, Europe, and internationally.

• SalMar is focused on strengthening its value chain by investing in fish welfare and reducing costs, which could improve the company's net margins and earnings.
  
• The company is implementing preventive technology and submerged technology to reduce lice pressure, expected to improve biological performance and reduce costs, positively impacting net margins.
  
• SalMar is maintaining and increasing harvesting and processing capacity, which is likely to support revenue growth by optimizing production and increasing efficiency.
  
• The proposed integration and consolidation with Wilsgård AS aims to provide growth in Northern Norway, potentially expanding revenue and strengthening earnings through synergies and improved operational efficiencies.
  
• SalMar's stable financial position and completion of strategic acquisitions like Knutshaugfisk provide a strong platform for future organic and acquisitive growth, expected to positively influence earnings and shareholder value.

SalMar Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SalMar's revenue will grow by 12.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.5% today to 22.6% in 3 years time.
• Analysts expect earnings to reach NOK 8.1 billion (and earnings per share of NOK 40.21) by about September 2028, up from NOK 1.1 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.0x on those 2028 earnings, down from 60.8x today. This future PE is lower than the current PE for the GB Food industry at 24.2x.
• Analysts expect the number of shares outstanding to grow by 1.42% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.16%, as per the Simply Wall St company report.

SalMar Future Earnings Per Share Growth

Risks

• Ongoing environmental and biological challenges, such as jellyfish and sea lice, have negatively impacted cost growth, volume, and fish quality, which could continue to affect revenue and net margins.
  
• A high level of operational risk exists due to the dependency on weather conditions, which has already affected the harvest volume and could impact future earnings if such challenges persist.
  
• High costs, particularly in Iceland, have contributed to lower EBIT per kilo, indicating that despite stable production, earnings might be under pressure due to cost inefficiencies.
  
• Event-based mortality and biological production risks have led to increased costs, impacting operational EBIT and potentially affecting the reliability of future financial projections.
  
• Fluctuating market conditions, including seasonal variations and reliance on spot prices, could lead to volatility in revenue streams and create uncertainty in achieving consistent earnings growth.

Valuation

• The analysts have a consensus price target of NOK527.143 for SalMar 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 NOK650.0, and the most bearish reporting a price target of just NOK420.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be NOK35.7 billion, earnings will come to NOK8.1 billion, and it would be trading on a PE ratio of 11.0x, assuming you use a discount rate of 6.2%.
• Given the current share price of NOK508.5, the analyst price target of NOK527.14 is 3.5% 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.