SALMAR ASA
(OSL: SALM)

Ticker: SALM
Buy: market (452 NOK)
Take profit: 520 NOK


SALMAR (OSL: SALM), founded in 1991, is the fourth largest salmon producer in the world. The head office is located on the island of Froya, Norway.

The company owns 59% of Arnarlax Ehf, Iceland's largest salmon farm, and 50% of Norskott Havbruk AS, which owns 100% of Scottish Sea Farms Ltd, the UK's second largest salmon farm.

Statista projected salmon market to grow by 3.7% per year.

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Source: statista.com 

The one-year Beta is at 0.15, the value of the 5-year Beta is -0.31.

This indicator allows you to judge about the relatively high independence of the asset. Below is a graph of the stock price compared to the SP500 (SPX) and the Oslo Exchange Index (OBX).

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Current dividend yield of 5.03% (next dividend payout is June 2020). The company has been steadily increasing dividends over the past 10 years.

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The Nasdaq Salmon Index shows an increase in the average cost of salmon per kilogram from 40 to 78 kroons per kg in the 4th quarter of 2019, which suggests a positive dynamic of revenue in the upcoming reports.

Снимок экрана 2020 01 29 в 12.57.04 Price / Earnings at 17.7, with an average of 26.5 in the food industry.


Balance Analysis

 - The ratio of borrowed capital to equity decreased from 50.3% to 32.5% over the past 5 years.

 - The company's assets are 2.08 times higher than total liabilities.

 - Intangible assets in the balance sheet structure are less than 27%.

Competitors Analysis

The company has been showing better dividends and maximum profitability for 5 years. At first glance the company's weak point can be considered an overestimation of Price to Book Ratio, however, given the high margin, we can talk about better management efficiency in the industry.


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Risks

Medium

 - - Salmon price adjustment

 - Reduced yield on farms due to an increase in water temperature and a decrease in flow rate, which leads to active propagation of phytoplankton. The fact is that Phytoplankton adheres to the gills of the fish, which in turn suffocates. Growing on the farm does not allow the fish to swim away from seaweed.

Low

 - Strengthening of the kroon against the dollar (fund currency).

Over the past 10 years, the Norwegian krone has weakened against the dollar, and the difference in interest rates is 0.25%, which does not suggest a strong movement:

 - 1.5% for Krone (was increased from 1.25% in September 2019)
 - 1.75% in US dollars (lowered from 2% in October 2019)

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Technical analysis

After a sharp increase from 200 NOK to 520 NOK in 2018, the company's share price corrected by more than 50% and is now in a moderately upward corridor, consolidating ahead of the year-end results. RSI on the daily and weekly charts is in the middle of its range, warning us about possible corrections.

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Summary

SALMAR is the industry leader in terms of profitability in a growing market and has a low debt burden. In the future 6 months, we expect to see an exit at the level of 520 NOK per share (+ 14% of the current level), while receiving dividends of 5%. The total return for 6 months can be about 19%. This paper will significantly reduce the Beta portfolio and complement diversification by industry.
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