Seafood and salmon producer Tassal Group Limited (ASX: TGR) today forwarded a presentation it showcased in Goldman Sachs Emerging Leaders Conference.
The Group reported 22.3% growth in operating NPAT to $31.7 million for the half year ended 31 December 2018. Its operating EBITDA rose 20.8% to $64.3 million that led to 96.3% increase in Group’s 1HFY19 operating cashflow. These results demonstrate that Tassal is delivering on its core salmon growth strategy alongside unleashing a new growth runway with prawns that build on its success with salmon.
Tassal expects a more gradual growth and sales curve for salmon over the near term, i.e., 2H19 and Fiscal 2020, underpinned by ongoing investment in geographic diversification. Further, the company has a well-balanced program in place to grow returns through pricing, improvements and adaption of new technology and species diversification.
Prawns and salmon underscores 70% of retail seafood sales across Australia. Tassal’s salmon performance has gone steep up that includes 32.8% growth in Salmon revenue of A$285 million in 1HFY19 and 21.7% rise in salmon hog tonnes to 16,908. The Salmon Average Price stood at $13.87 per Hog kg in the first half of Fiscal 2019 compared to $12.71 per Hog kg in 1HFY18.
To unlock large seafood supply synergies, Tassal acquired Fortune Group that has Australia’s largest prawn farming footprint. It was a $31.9 million acquisition supported by $34 million development program.
The company stated that fully developed, the output capability of the Fortune Group acquisition could exceed 6,800 tonnes while operational improvements are expected to increase supply growth from 450 tonnes pa to ~3,000 tonnes pa within 3 years. The takeover included the acquisition of three prawn farms which have approximately 270 hectares of ponds licensed, capable of producing 3,800 tonnes at target yield of 14 tonnes per hectare.
Tassal is targeting prawns annual EBITDA of $25 million within 3 years. It further stated that domestic per capita consumption growth of prawns is similar to salmon as the marginal investment in marketing for prawns and low retail penetration provides substantial opportunity for Tassal to replicate Salmon success.
Going forward, the company focuses on reducing marine debris from its operations and ensuring that it’s salmon operations in Tasmania continue to meet the highest sustainability standards. The earnings from the prawn operations acquired will reportedly be commenced in the short to medium term, i.e. 2H19.
Tassal eyes strong pricing returns and improved domestic pricing due to Salmon supply shortage in the domestic market. It believes that these substantive returns have the potential to offset increased farming and production costs.
The demand for seafood in Australia is expected to outstrip seafood and aquaculture growth which calls for 6-10% growth in world supply to maintain price parity. But with supply likely to be less, the company positioned itself for higher international pricing outlooks.
TGR stock price declined by 0.815% to last trade at $4.870 on 4 April 2019. The stock closed at a price to earnings multiple of 13.930x with a market capitalisation of $870.37 million.
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