Why would you short Tassals *now*?, page-825

Almost like an arm wrestle today.. no volume coming through at these rates. Glad to see that the sellers are finally realising that the share price may not be indicative of the current value.

@baldynumbers Thanks for the clarification there on the share registry. As AFR reported, it's total chaos with $10m / 2.6m shares trading hands already today at ABOVE the offer price.. so definitely expecting some further action. If Twiggy really wanted Huon, and indeed it is him accumulating a blocking stake, he would have had the chance during the normal due diligence process and now is just throwing a tanty. I really hope they just keep bidding it up and run out of money to reinvest in CAPEX down the track!

Whoever ends up owning Huon, they have two options ahead of them. Either, they continue this charade of expanding the top-line volume and revenue, dumping into the domestic wholesale/retail markets (e.g. selling below cost to Coles), and pretend this somehow benefits shareholders - it doesn't, it's the cause for their asset impairments and poor operating performance. Or, they pull back their high cost production in the ocean pens, refocus their attention on expanding margins, and actually go back to their FY18 playbook where they made real money.

If they do the latter, then it's rivers of gold for Tassal because finally we will break out of this price stagflation in retail salmon. The dumping from Huon has put pressure on the salmon EBITDA/KG margins. Let's go back to a nice oligopoly of above-market profits between Huon, Tassal and Petuna. This isn't about collusion or anything, it's about a fair risk/reward for aquaculture farming. The only saving grace for Tassal over the previous periods has been that we are the lowest cost producers - so even during the dumping from Huon we have maintained profitability, and sought more efficient production through the 2025 strategy. Everytime I buy salmon from a supermarket it makes me sick that they have that little sticker "same price since August 2018". @McQuade has highlighted this issue too. New owners, reset on the strategy to focus on operating earnings, and we all win.

In terms of what a fair valuation is, I think Goldman Sachs is on the money when they look at EV/EBITDA of 9-12. @bug1 I posted above the range of implied valuations for Tassal based on Huon's operations, including FY20 and FY21f EBITDAs. The problem with this metric however is that the buyers (JBS, Twiggy, whomever) are factoring in that they can improve the operating earnings. The other metric of Huon to Tassal share price ratio is going to be super messy. The share price excludes things like debt, rights of use, etc - it's market cap and not the enterprise value. Capital raising and the number of shares outstanding also aren't clear in that metric. A more accurate reflection of the underlying valuations between Huon and Tassal may be book value or net tangible assets. If you did a comparison of price to book over time, you may see trends emerging in which stock is relatively over/under valued. Let us know how you go.