Thoughts of Tassal Groups underlying company encouraged.
A quick review of TGR 10 year financials identifies that TGR has been a cyclical slow grower. Sales have grown from $1.75 per share in 2012 to $2.71 per share in 2020. Over the same period, book value per share has increased from $2.02 to $3.72. Unfortunately this has not been all organic growth with periodic capital raisings increasing share on issue from 146m to 201m.
The PE bandwidth is around 7.5- 13. TGR never seems to attract a high PE multiple, which makes sense when one thinks of the underlying cyclical nature of the business and the agricultural risk around the business.
Return on Equity is relatively consistent fluctuating from around 9.5% to 13% (with it being more weighted to around 10% on average). Similar numbers for Return on Capital.
For the next few years both RoE and ROIC will be lower than historical averages because of the acquisition of land holdings and the build up of infrastructure, with a lag to scalability of sales. This factor probably explains the recent under performance in share price.
Key messages from the latest AGM, TGR is still forecasting growth into FY2021 which is good.
Their investment in infrastructure and acquisition of landholdings is long term positive with the underlying purpose being the reduction in unit costing. To me this is very important as it builds out a durable barrier to entry through being a low cost provider. The acquisition of Billy Creek is important as it can hook up to the existing Proserpine infrastructure.
Stock is being shorted in my opinion because of execution risk and the forecast reduction on returns on capital.
But in my opinion the price has dropped sufficiently and underperformed the market sufficiently to have a reasonable margin of safety if one focuses on FY2023 and beyond. Its trading in the lower part of its PE band, consensus earnings are for slow growth over the period to FY2023 (and this is reinforced by AGM commentary).
Continued weakness in Salmon prices (Export Fish Pool price updates) posses a risk to consensus EPS. However to me I prefer acquiring cyclical type stocks when they are they cycle pricing lower points, than their cycle pricing higher points as this provides a future buffer with the market already capturing the lower pricing within the share price.
I have acquired a reasonable position in TGR.
TGR Price at posting:
$3.39 Sentiment: Buy Disclosure: Held
