Food for Valuation

Report
Investing in Seafood
Favourable outlook & attractive valuation
London Seafood Investment Forum, 19 November 2013
Food for Valuation
David Kerstens
+4477 1781 6277
[email protected]
Agenda
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Overview publicly listed seafood sector
Company rankings
Favourable outlook
Attractive valuation
Risk factors

Q&A
Food for Valuation
2
Overview publicly listed seafood sector
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The new IntraFish Industry Report ‘Investing in Seafood’ analyses the 50 largest publicly listed
seafood companies in the world;
The publicly listed seafood sector is still relatively small, with a combined market cap of only
€24 billion (compared to almost €300 billion for the European Food majors);
The publicly listed seafood sector generates €39bn in revenues, accounting for 24% of the
global seafood sector;
There are large differences in the financial performance between different seafood
segments, as well as between geographies.
Breakdown seafood sector market cap by segment
Breakdown seafood sector market cap by geography
Source: Food for Valuation
Source: Food for Valuation
Food for Valuation
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Company rankings
Top-10 by market cap
Company name
CP Foods
Marine Harvest
Nutreco
Thai Union
Cermaq
Leroy Seafood
Zhangzidao Group
Salmar
Austevoll Seafood
Oceana Group
Top-10 by revenues
Market
Cap
(€ m)
4,539
2,945
2,623
1,493
1,181
1,124
1,111
989
845
776
Source: Food for Valuation
Source: Food for Valuation
Top-10 most profitable
Company name
China Ocean Resources
Dalian Yiqiao Marine Seeds
Bakkafrost
Shandong Homey Aquatic Development
Solvtrans
China Fishery Group
Zhangzidao Group
Copeinca
Salmar
Pacific Andes Resources Development
Source: Food for Valuation
Company name
CP Foods
Maruha Nichiro Holdings
Nutreco
Nippon Suissan Kaisha (Nissui)
Thai Union
Marine Harvest
Austevoll Seafood
Cermaq
Pacific Andes International Holdings
Kyokuyo
Revenues
2012
(€ m)
8,409
6,150
5,229
4,305
2,512
1,908
1,459
1,453
1,388
1,352
Top-10 highest mid-cycle ROIC
Mid-cycle
EBIT margin
(%)
44.2
40.8
24.3
23.7
23.4
23.2
18.3
17.5
17.4
16.6
Company name
Oceana Group
Silla
China Ocean Resources
Baiyang Aquatic Group
Bakkafrost
Nutreco
CP Foods
Zhangzidao Group
Dongwon Industries
Clearwater Seafoods
Mid-cycle
ROIC
(%)
38.3
23.6
18.1
14.7
13.8
13.0
12.2
12.2
11.2
10.9
Source: Food for Valuation
Food for Valuation
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Company rankings - continued
Top-10 highest revenue growth
Company name
Dalian Yiqiao Marine Seeds
Bakkafrost
CP Foods
Salmar
Thai Union
Kyokuyo
Baiyang Aquatic Group
Oceana Group
Shandong Homey Aquatic Development
Zhanjiang Guolian Aquatic Products
Top-10 highest EBIT growth
CAGR
revenues
(%)
59.6
29.6
23.1
18.3
15.4
15.3
15.2
15.0
14.5
14.3
Source: Food for Valuation
Source: Food for Valuation
Top-10 highest financial leverage
Company name
Australis Seafoods
Cia Pesquara Camanchaca
Russian Sea
Nireus
Nippon Suissan Kaisha (Nissui)
Maruha Nichiro Holdings
Zhanjiang Guolian Aquatic Products
Kyokuyo
Sajo Industries
Norway Royal Salmon
Source: Food for Valuation
Company name
Dalian Yiqiao Marine Seeds
Yonkyu
Solvtrans
Bakkafrost
Kyokuyo
Shandong Homey Aquatic Development
Norway Royal Salmon
High Liner Foods
Oceana Group
Clearwater Seafoods
CAGR
EBIT
(%)
74.4
62.7
37.9
31.1
28.5
21.4
20.2
18.6
18.0
17.3
Top-10 lowest financial leverage
Net debt/
EBITDA
mid-cycle
16.0
13.9
13.8
13.6
9.6
9.1
8.6
7.3
6.4
5.9
Company name
Yonkyu
CNFC Overseas Fishery
Baiyang Aquatic Group
Silla
Oceana Group
China Ocean Resources
Omega Protein Corp
Shandong Zhonglu Oceanic Fisheries
Zhangzidao Group
Nutreco
Net debt/
EBITDA
mid-cycle
-13.8
-11.5
-3.5
-1.2
-0.3
0.1
0.6
0.7
0.8
0.9
Source: Food for Valuation
Food for Valuation
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Favourable outlook
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

Continuing strong projected revenue growth of 12% per annum for the next two years, in line
with growth over the last two years, but this time around increasingly driven by higher prices;
As a result, profitability is expected to improve strongly, with EBIT margins almost doubling
from 6.9% last year to 13.4% this year, and further increasing to 14.7% next year;
Return on invested capital is projected to recover from 5.4% last year, to 9.9% this year,
broadly in line with the cost of capital, and to 11.3% next year.
Seafood sector EBIT margin and ROIC development (%)
Source: Food for Valuation
Food for Valuation
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Favourable outlook
ROIC development by seafood segment (%)
Source: Food for Valuation
Food for Valuation
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Valuation
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The valuation of the seafood sector has increased by 14% so far this year, mainly driven by
the salmon farmers, and by 56% since the start of 2010, mainly driven by fish feed producers;
The seafood sector is now trading at 7.0x EBIT and 10.3x EPS projected for FY14E, which is
relatively low compared to the consumer sector at 16.5x EPS projected for FY14E.
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The seafood sector is still relatively small and less well known with financial institutions;
There is a relatively high cyclicality of earnings, outweighing favourable long-term demographic trends;
The sector is trading at 10.3x EPS projected for FY14E, but at 14.8x based on mid-cycle EPS.
‘Investing in Seafood’ covers the top-50 publicly listed global seafood companies, with full
financial models, detailed company profiles and investment cases.
Seafood sector performance & valuation overview by segment
Salmon farming
Fish farming
Fishing
Fishmeal
Fish feed
Processing
Total / average
Market Enterprise Revenues
CAGR
cap
value
2012 revenues EBIT (%) ROIC (%)
(€ m)
(€ m)
(€ m)
(%) mid-cycle mid-cycle
7,745
10,228
6,029
10.3
14.2
6.5
3,719
4,544
2,273
22.3
15.3
8.8
3,577
5,431
5,069
8.0
8.6
6.0
2,588
3,426
2,626
9.0
16.3
8.2
3,849
4,692
7,060
13.5
7.5
11.5
2,534
9,031
15,822
9.2
6.0
6.0
24,012
37,353
38,878
11.8
10.7
7.9
ROIC (%)
2014
13.1
10.7
7.5
9.0
11.2
7.9
11.3
Perf.
YTD
(%)
27
-2
3
14
20
9
14
EV/IC
(%)
1.3
2.4
1.6
1.6
1.6
1.3
1.3
EV/EBIT
2014
6.9
12.7
10.1
8.4
9.8
15.0
7.0
P/E
P/E
2014 mid-cycle
7.1
16.7
15.2
25.0
10.4
12.1
9.9
10.3
11.9
11.8
9.3
15.8
10.3
14.8
Source: Food for Valuation
Food for Valuation
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Valuation - continued
Top-10 best performers YTD
Company name
Norway Royal Salmon
Tassal Group
Borneo Aqua Harvest
Copeinca
China Ocean Resources
The Scottish Salmon Company
Omega Protein Corp
Salmar
Clearwater Seafoods
Zhanjiang Guolian Aquatic Products
Top-10 best performers since 1 Jan 2010
share price
performance
YTD (%)
118
115
92
68
62
55
54
54
41
40
Company name
Clearwater Seafoods
High Liner Foods
Yonkyu
Oceana Group
Dongwon Industries
Borneo Aqua Harvest
Silla
CP Foods
Omega Protein Corp
Thai Union
Source: Food for Valuation
Source: Food for Valuation
Top-10 highest valued seafood stocks
Top-10 lowest valued seafood stocks
Company name
Zhanjiang Guolian Aquatic Products
Zhangzidao Group
Oceana Group
Shanghai Kaichuang Marine International
Dalian Yiqiao Marine Seeds
Shandong Homey Aquatic Development
CP Foods
Nippon Suissan Kaisha (Nissui)
Nutreco
Yonkyu
Source: Food for Valuation
P/E
2014
23.6
16.7
16.3
14.8
14.6
14.0
13.8
13.4
13.7
13.1
Company name
Pacific Andes International Holdings
Pacific Andes Resources Development
Solvtrans
The Scottish Salmon Company
Grieg Seafood
China Fishery Group
Norway Royal Salmon
Bakkafrost
Austevoll Seafood
Salmar
share price
performance
Jan 2010 (%)
588
314
262
194
149
132
128
118
112
95
P/E
2014
2.6
3.4
5.0
5.1
5.6
5.7
6.3
6.4
6.5
7.2
Source: Food for Valuation
Food for Valuation
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Risk factors
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High share price volatility
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Low earnings predictability
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Fish diseases and other biological issues are likely to continue to negatively impact operating costs and investor
sentiment towards seafood stocks.
Environmental and food safety concerns
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Marine Harvest farms the majority of its salmon in Norway, whereas the majority of revenues are generated in the
Eurozone, causing substantial NOK/EUR transaction exposure.
Fish diseases and other biological issues
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Farmers tend to overinvest in the upturn of the cycle, resulting in high financial leverage when the cycle turns. For
example, balance sheets of seafood stocks looked stretched with net debt at 4.8x EBITDA at the end of 2012.
Currency transaction risk
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
Earnings are highly sensitive to salmon prices, which have proven difficult to forecast. A change of NOK 1/kg in the
salmon price changes operational EBIT by NOK350m, corresponding to more than 50% of operational EBIT in 2012.
Relatively high financial leverage
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
Volatility is caused by commodity price cycles, with salmon prices moving up or down by over 50% in less than a year.
Fish farming sometimes is criticized from an environmental or food safety perspective, which may negatively affect
consumption and investor sentiment.
Economic factors

Demand for salmon as a relatively more expensive protein source maybe negatively affected in a weaker economic
environment.
Food for Valuation
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Disclaimer
Every effort has been made to ensure the accuracy of the contents of this presentation, but legal
responsibility cannot be accepted for errors, omissions, or for damages resulting from the use of
the information contained in this presentation.
Food for Valuation
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Thank you!
Questions?
Food for Valuation
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