Australia | Jun 28 2006
By Greg Peel
It is such a pleasure to be able to write about something other than resources, banks or interest rates for once.
I remember my first encounter with Atlantic salmon in a restaurant many years ago. The menu board said "Tasmanian Atlantic salmon", and being one of those sad pedants who enjoys finding all the mistakes on menu boards, I quickly queried the waiter as to when Tasmania had been moved to the Atlantic. I was soon educated on the salmon breed known as "Atlantic" which was being farmed down south.
As Australians have become increasingly more health conscious, fish as a food staple has taken on a new lease of life. Oily fish in particular, such as salmon, are now known to be primary sources of that supposedly wonderful thing known as Omega-3. Whereas tinned salmon has always been around, a trip to a fish monger or supermarket these days will indicate the dominance of striking Atlantic salmon fillets and cutlets. Australia has embraced the humble salmon.
Merrill Lynch reports this trend is clearly evident in salmon sales. Having trundled along at a healthy but unspectacular 10% growth for years, salmon demand growth in FY05 jumped to 15%, and for the first half of FY06 has hit 26%. Merrills puts this down to the Omega-3 phenomenon.
Tassal Group (TGR) was listed in 2003 after it pulled Tassal Ltd out of receivership. Its biggest competitor in the salmon stakes was Aquatas, so Tassal acquired it in 2005. Now Tassal produces some 12,000t of salmon each year and has secured 75% of the domestic market. Smaller quantities are also distributed offshore.
The Aquatas acquisition was one of those episodes brokers, including Merrills, like to call a "company changing event". Tassal took out the competition and secured pricing power. Synergies were equated to $9m, which is pretty good when you consider Merrills is forecasting an $11m profit this year. Earnings growth expectations are for 74% in FY06 and 31% in FY07.
Tassal trades on a multiple of 8.3x (FY07) which is a 20% discount to domestic comps and 50% to the All Industrials Ex Financials. Merrills believes Tassal should trade at 10x and as such has set a target of $1.34.
Tassal closed yesterday at $1.10 and Merrills rates it as Buy (high risk).