feb 23 results predictions

im interested to see some predictions of results for feb 23 from hc enthusiasts.

we know ord minett is one of the only analysts covering tgr and that they downgraded to a 33% decrease in eps from 41cps to 27cps a couple of months ago.

i have trouble believing their numbers, so i thought we should have our own debate. key points from my research and analysis, having held tgr for a couple of years and traded in and out of it:

1) the financial fundamentals have been solid with consistent eps growth over the last 5 years. this provides support to the sp.

2) debt is relatively low which is important in an inflationary/ rising rates environment and is important in a commodity producer in case prices drop, ie they will still be able to pay their interest easily even if salmon prices drop further.

3) they pay a high dividend of around 15c which equates to nearly 5% at the current sp and this is fully franked so grosses up to around 6.5%. this will support the sp. their last operating cashflow was 50mill and debt/ leverage is low so they should be able to support this divi payout even through the commodity cycle of price variability.

4) the massive issue driving the sp down and shorting up recently has been the declining international salmon prices, as easily accessible through the nasdaq salmon index charts etc. but these numbers must be taken with a grain of salt, because they are not a global market price as is commonly misunderstood, they are the price the norwegian producers have been getting for their exports.
this is a crucial detail, because for example norwegian salmon imports have been banned in china which is tgr’s key target market. in fact salmon prices have been robust in china and demand / import volumes are growing at 25% pa, driving illegal imports from norway via vietnam. tgr has a strategic advantage due to shorter delivery times by 2 days cf norway so fish is fresher, and due to the strong reputation for quality.
larger size salmon hogs of 5kg+ fetch premium prices in asia and this is where tgr has been capitalising by holding stock until larger before harvesting.
so in short, i dont agree with the kneejerk assumption that tgr export prices will be down 20% as per the norwegians.

5) sales volumes will be up given biomass was up 45% at last report and given the plan was to start harvesting in h1 fy18.

6) the economies of scale should constrain costs on a per kg basis, assisting margins even in a tight oric ng environment. tgr costs have been reducing to 6.50/kg in line with the 6/kg of the biggest norwegian producers.

7) their capex should be decreasing from a period of elevated capex of 170mill recently to fund expansion of facilities and r&d and biomass growth

8) they almost always surprise the market to the upside with earnings, so shorters are brave to bet against them

9) their ubs presentation in late november ans agm presentation in late october both guided for record profits in fy18 and beyond, so the likelihood of a 33% decline seems very low or they would have had to issue a profit warning by now. the absence of a profit warning suggests no major miss or change from previous guidance.

10) they have weathered the environmental issues and media spotlight and the attacks in the media seem to have settled for now at least.

11) de costi is tracking above expectations.

12) domestic wholesale and domestic retail prices appear stable.


so i really dont see what all the fuss is about. ive been wrong before, but i have decided to hold my existing tgr shares (<3% weighting at an average of 3.80) and to buy more if it dips further in the next couple of days before the results. its a high risk buy to go against the sp trend and against the shorters, but its a risk im willing to take with a small % of my portfolio as the upside looks better than the downside at around 3.45-3.50.

i dont expect a spectacular result but i think the cuance of a blood bath is v low given sentiment is already poor and the p/e for say 35c eps (a 20% decrease from 2017, partly due to dilution from tue cap raise) is around 10, and at eps of 40c its a p/e of 9 with a 6.5% gross yield.