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IntraFish – Seafood Investor Forum London 31 October 2014
2
The Seafood case: Evolution, not revolution
1) A decade of industry evolution masked by a single event with double impact, Chile…
2) Lower supply growth going forward
3) Potential Re-rating of company valuations
Source: Kontali, DNB Markets
Supply volatility is the Achilles heel of the industry…
3
15
20
25
30
35
40
45
-100
-50
-
50
100
150
200
250
300
350
400
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015e
Supply Growth (kt) Price (NOK/kg)
Is 1991 comparable with 2006-2015?
1. Global Supply has grown almost 10x from 266kt in 1991 to 2.249kt in 2015e
2. Consolidation
Number of companies controlling 80% of Norwegian volumes down from +70 in 1997 to 24 in 2012.
Top 15 companies control almost 70% of Norwegian volumes
Global Salmon Initiative (GSI), 15 biggest global producers, control 75% of the market.
3. Better integration through the value chain (feed to plate)
4. Broader product range
5. Significantly improved logistical infrastructure
6. The two largest producing nations facing involuntary growth pains
7. Was 2012 a one-off?
SalMar and Bakkafrost is already at +NOK10/kg average 2006-2015e
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…causing huge margin swings. Is the average EBIT/kg NOK4.0 or NOK8.0?
-2
0
2
4
6
8
10
12
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013e 2015e
EBIT/kg Average 1991-2010 Average 2006-2010
Excess debt, lack of supply discipline
Source: Kontali, DNB Markets
5
1) The market is a bit bigger than it was in the 1990’s…
-
500
1,000
1,500
2,000
2,500
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14e
20
15e
1990-2013 CAGR: 9.5%
10x…
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We consume more volume at a higher price…
Higher volume x higher price = Big jump in value!
0
100
200
300
400
500
600
700
800
900
Volume (Rebased) Value (Rebased)
Higher volume x higher price = Big jump in value!
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We consume more volume at a higher price (continued)…..
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5
10
15
20
25
30
35
40
45
- 500 1,000 1,500 2,000 2,500
Salm
on
Pri
ce (
NO
K/k
g)
Volume ('000 tonnes)
We consume more volume at a higher price… (continued)
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We are consuming more at a higher price (continued)…..
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5
10
15
20
25
30
35
40
45
- 500 1,000 1,500 2,000 2,500
Salm
on
Pri
ce (
NO
K/k
g)
Volume ('000 tonnes)
2010: Vol -4%, Price +23%
2006: Vol +1%, Price +24%
2012: Vol 23%, Price -13%
2013: Vol +3%, Price +49%
2007: Vol 10%, Price -21%
We consume more volume at a higher price… (continued)
2) Industry Consolidation
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Source: Ministry of Fisheries, Marine Harvest Factbook
1999; 70
2012; 24
-20
-10
0
10
20
30
40
50
60
70
80
90
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Num
ber
of
sm
all
com
panie
s
Number of companies controlling 80% of Norwegian volume
5kt
38kt
Source: Marine Harvest Factbook
10
2) Industry Consolidation – Continued
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3) Companies are getting more integrated
Source: Morpol
12
4) Product development
Source: DNB Markets
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Animal protein consumption per capital per annum (kg)
US Beef; 24.4
US Poultry; 44.9
EU Poultry; 23.7
EU Salmon; 1.9
0
5
10
15
20
25
30
35
40
45
50
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013e 2014e
Kg
/cap
ita
/ p
er
an
nu
m
12x
23x
Improvement to the logistical infrastructure
Truck
Airfreight to US and Asia
Train
Fresh frozen
Modified Atmospheric Packaging (MAP)
New technology to increase freshness of product
Retailers now receive desired quantity and quality with greater certainty
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5) Logistical improvements
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Salmon becoming more global with flexible trade patterns
Source: Ministry of fisheries, DNB Markets
EBIT/kg (NOK) – 5 year moving average on the rise…
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-
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
*SalMar and Bakkafrost is already at +NOK10/kg average 2006-2015e
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…but volatility as bad as ever due to Chile collapse and rebound
-2
0
2
4
6
8
10
12
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015e
EBIT/kg Average 1991-2013 Average 2006-2013e
Write-downs,
restructuring cost
Volume rebound putting
pressure on prices
Excess debt, lack of supply discipline
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What if Chile never collapsed……
Source: Ministry of Fisheries, DNB Markets
If Chile never collapsed EBIT/kg would be NOK1.2 higher and std. dev. 50% lower.....
19
-2
0
2
4
6
8
10
12
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015e
Adj Margin Average 1991-2013 Average 2006-2013
No rolling MAB in Norway
Growth in Norway will be accompanies by very strict demands to
biological sustainability
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Latest Seafood Sector update titled – Few clouds in the sky
Source. Kontali
Norway – Regulatory challenges Regulatory roof makes it hard to grow without more licenses or alterations to regulations…
21
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No-rolling MAB and strict line on biology means Norwegian growth profile will flatten out…
Source: Aquacbench, DNB Markets
Chile – Biological and financial roof limiting growth 12-month rolling Atlantic salmon smolt release down 7% (September 2014)
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0
20
40
60
80
100
120
140
160
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Chile - 12 month rolling smolt release (million)
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Global supply growth of 2.3% in 2015e and 3.6% in 2016e
Atlantic salmon supply (whole fish equivalent - wfe)
2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e
Norway 599 723 741 856 945 1,006 1,183 1,144 1,247 1,272 1,310
UK 127 135 137 145 142 155 159 158 161 164 167
Ireland 15 16 11 15 18 16 16 11 11 12 12
Faroes 12 19 37 47 42 56 70 73 76 79 82
Iceland 4 2 1 1 1 1 3 3 3 3 3
Total Europe 757 895 927 1,064 1,148 1,234 1,432 1,389 1,498 1,530 1,575
Chile 369 356 403 239 130 221 364 468 501 511 536
Canada 115 110 119 115 118 110 137 115 127 133 140
USA 10 12 17 16 18 18 20 20 21 22 23
Total Americas 494 478 539 370 266 349 521 603 648 666 699
Australia/Other 19 24 26 32 33 36 45 49 51 54 57
Total Atlantic (Harvest volumes) 1,270 1,397 1,492 1,466 1,447 1,619 1,997 2,041 2,198 2,249 2,331
Change frozen salmon inventory 2 -4 -25 39 2 1 -9 2 -
Total supply Atlantic 1,272 1,393 1,467 1,505 1,449 1,620 1,988 2,043 2,198 2,249 2,331
Atlantic salmon supply growth y/y
2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e
Norway growth 5 % 21 % 2 % 16 % 10 % 6 % 18 % -3 % 9.0 % 2.0 % 3.0 %
UK growth 6 % 6 % 2 % 6 % -2 % 9 % 3 % -1 % 2.0 % 2.0 % 2.0 %
Ireland 21 % 7 % -31 % 36 % 20 % -11 % 0 % 3 % 4.0 % 4.0 % 4.0 %
Faroes growth -30 % 60 % 93 % 27 % -11 % 33 % 26 % 4 % 4.0 % 4.0 % 4.0 %
Iceland -43 % -50 % -50 % 0 % 0 % 0 % 200 % 0 % 0.0 % 0.0 % 0.0 %
Total Europe 4 % 18 % 4 % 15 % 8 % 7 % 16 % -3 % 7.9 % 2.1 % 2.9 %
Chile growth -4 % -3 % 13 % -41 % -46 % 70 % 65 % 29 % 7.0 % 2.0 % 5.0 %
Canada growth 7 % -5 % 8 % -3 % 3 % -7 % 24 % -16 % 10.0 % 5.0 % 5.0 %
USA 4 % 20 % 42 % -6 % 13 % 0 % 11 % 5 % 5.0 % 5.0 % 5.0 %
Total Americas -2 % -3 % 13 % -31 % -28 % 31 % 49 % 16 % 7.5 % 2.7 % 5.0 %
Australia/Other 6 % 26 % 8 % 23 % 3 % 9 % 25 % 12 % 5.0 % 5.0 % 5.0 %
Total Atlantic (Harvest volumes) 1.7 % 10.0 % 6.8 % -1.7 % -1.3 % 11.9 % 23.4 % 2.2 % 7.7 % 2.3 % 3.6 %
Change frozen salmon inventory
Total supply Atlantic growth 0.9 % 9.5 % 5.3 % 2.6 % -3.7 % 11.8 % 22.7 % 2.7 % 7.6 % 2.3 % 3.6 %
Analysts: Alexander Aukner (+47 24 16 90 79; [email protected] )
Seafood weekly 30 October 2014
We estimate a salmon price of NOK40/kg in 2014e and NOK42/kg in
2015e and 2016e due to limited global supply growth
Globally – Salmon price expectations of NOK40/kg for 2014e and NOK42/kg for 2015-16e
Our salmon price estimates are currently under review
Note: we use the Nasdaq price from 2013 versus the Fishpool/FHL
price before (Nasdaq price around NOK0.75/kg higher)
Source: FHL/NOS, DNB Markets Source: FHL/NOS, DNB Markets
Annual salmon prices (NOK/kg) and global supply growth Quarterly salmon prices (NOK/kg)
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21 20 19
22
25
31
25 26
30
37
30
26
39 40
42 42
-10%
-5%
0%
5%
10%
15%
20%
25%
15
20
25
30
35
40
45
Salmon Price (NOK/kg) Global supply growth (rhs)
46.6
39.4
35
40
44 44
38
42
44 44
38
42
20
25
30
35
40
45
50
Q106
Q306
Q107
Q307
Q108
Q308
Q109
Q309
Q110
Q310
Q111
Q311
Q112
Q312
Q113
Q313
Q114
Q314e
Q115e
Q315e
Q116e
Q316e
Extract from the consultation note - the draft regulations on capacity increases in salmon and trout farming in 2015
The report "Value creation based on productive seas in 2050" envisions the future of Norwegian marine industries. On the
condition that we manage to solve environmental problems in the aquaculture industry and that there is political will to prioritize
aquaculture industry has a far greater growth potential than is being utilized today. To realize the potential of reporting in 2050
there must be growth and development in salmon farming. The growth of salmon farming should probably be somewhere
between three and five percent on average per year for the industry to be able to produce five million tonnes in 2050
The government will publish a white paper on predictable and sustainable growth of aquaculture in the spring of 2015. The effect
of growth policies in the message we will probably only be able to begin to see in 2017, while the increase in capacity now take
effect as early as 2015. The "strictness" that we present today, will be taken with us in the work on the white paper.
26
And what about the growth profile post 2017….?
…seems 3-5% annual growth is the number to look for, but growth
may be even lower until sea-lice problems are resolved
Assuming a global supply growth of 3% pa and demand growth of 6% pa, the undersupply
will grow by 70-80kt per annum
That’s half the UK production in undersupply growth per annum!
27
Undersupply unlikely meet by new technology or regions anytime soon…
2014e 2015e 2016e 2017e 2018e
Global Supply Grow th 3% p.a. (kt) 2300 2369 2440 2513 2666
Global Demand Grow th 6% p.a. (kt) 2300 2438 2584 2739 3078
Aggregated Undersupply -69 -144 -226 -412
Source. DNB M arkets
Solid balance sheets and attractive valuations mean we
remain positive to the sector
29
Solid balance sheets, healthy cash flow and high dividends expected
+50% Equity ratio
1x NIBD/EBITDA
6-10% FCF yield and
4-10% DVD yield
30
Which make sector PE of 7.5x and 6-9% DVD yields for 2015e look attractive!
CEQ – Bid from
Mitsubishi Corp.
Company
Marine
Harvest Salmar
Lerøy
Seafood
Grieg
Seafood
Norway
Royal
Salmon Bakkafrost Cermaq
Recommendation BUY BUY BUY BUY BUY BUY HOLD
Target Price (NOK) 115 145 300 30 65 190 96
Upside potential 24 % 20 % 19 % 7 % 25 % 24 % 0 %
Market Cap (NOKm) 38,165 13,653 13,753 3,127 2,266 6,613 8,880
EV 45,409 16,204 16,361 4,491 2,787 7,016 11,678
2015e - DNB MHG SALM LSG GSF NRS BAKKA CEQ Average
PE 8.4x 7.8x 7.3x 6.4x 7.1x 8.3x 10.4x 7.5
EV/EBITDA 6.0x 6.2x 5.3x 5.0x 5.4x 5.5x 7.5x 5.6
EV/EBIT 6.8x 6.9x 6.0x 6.0x 5.9x 6.0x 9.1x 6.3
DVD yield 9.1 % 5.8 % 6.7 % 5.4 % 8.7 % 5.2 % 5.2 % 6.6 %
Implicit at Target 2015 MHG SALM LSG GSF NRS BAKKA CEQ Average
PE 10.4x 9.4x 8.7x 6.8x 8.9x 10.3x 10.4x 9.3
EV/EBITDA 7.2x 7.2x 6.2x 5.3x 6.5x 7.6x 7.5x 6.8
EV/EBIT 8.2x 8.1x 7.0x 6.3x 7.1x 8.3x 9.1x 7.7
DVD yield 7.4 % 4.8 % 5.7 % 5.0 % 6.9 % 4.2 % 5.2 % 5.6 %
31
Land based protein producers trade at 13.3x EPS for 2015e vs. seafood at 7.6x
32
Land based protein producers trade at 1% dividend yields vs. 6-7% for seafood…
33
And the bull case… Applying land based protein producer multiples suggest 70% upside
Current Share
price (NOK)
2015e EPS
(NOK) 2015e P/E
2015e P/E of land-
based protein
peers
Implied target
price (NOK)
Upside
Potential
DNB target
price (NOK)
Upside potential
above our target
price
Marine Harvest 93 11.0 8.4 13.0 143 54 % 115 25 %
Grieg Seafood 28 4.4 6.4 13.0 57 104 % 30 90 %
SalMar 121 15.5 7.8 13.0 201 67 % 145 39 %
Bakkafrost 153 18.4 8.3 13.0 239 57 % 190 26 %
Lerøy Seafood 252 34.6 7.3 13.0 450 79 % 300 50 %
Cermaq 96 9.3 10.4 13.0 120 25 % 96 25 %
Norway Royal Salmon 52 7.3 7.1 13.0 95 83 % 65 47 %
Average 67 % 43 %
34
Average performance last 5 quarters - All regions EBIT/kg (NOK)
0
2
4
6
8
10
12
14
16
18
Bakkafrost SalMar Marine Harvest Lerøy Seafood Norway RoyalSalmon
Grieg Seafood Cermaq
No.1
No.2
No.3
35
Marine Harvest - Back of the envelope valuation…
Fair P/E 4.0 6.0 8.0 10.0 12.0 14.0 16.0
8.0 48 64 80 96 112 128 144
9.0 52 70 88 106 124 142 160
10.0 56 76 96 116 136 156 176
11.0 60 82 104 126 148 170 192
12.0 64 88 112 136 160 184 208
13.0 69 94 120 146 172 198 224
14.0 73 101 129 157 185 212 240
Normalized EBIT/kg farming (NOK)Input
Harvest (kt) 445
VAP 150
FEED 100
Morpol 200
Elim -150
Net Debt 8,000
Interest 4.5 %
Tax 25 %
Outstanding Shares 410.4
DVD/share (14-16e) 17
Discount rate 8.50 %
Morning Presentation
36
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