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TGR tassal group limited

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Tassal Group Strategic Thoughts, page-117

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bug1

6,633 Posts.

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22/10/21

10:35

Post #: 56992884
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Originally posted by dabozza: ↑

To those not following what's going on @bug1, that would sound absolutely ridiculous. You're cray cray, mate! Go take a long bath and come back with some reasonable figures.

Meanwhile.. I'm with you on those calcs. My numbers are pretty similar, though I have been a bit less bullish on the export margins, and perhaps more bullish on volume. I was wrong in FY21 on the unwinding of inventory, but after the last investor conference, Tassal is definitely trying to unwind it. I think they had done 2200t, with a target of 5000t to be cleared from inventories. Surely with the market as it is, they are filling every inch of every plane flying from Hobart to the restaurants of Shanghai? If that is the case, then 8,000t of exports seems low. Because we know domestic will remain relatively stable, and so any unwinding of inventory has to go into the export market. That means it could be as high as 13,500t based on total harvest of 40,000t (may be closer to 41,000t).

For the margins, I have chosen $2.40/kg pre-air freight costs. I think that is going to be well short of the real mark. Current prices in China are way above the global export price due to their import restrictions - this benefits Australia, but Chile and parts of Europe are paying that cost. My estimate was based on 55NOK as average export price: we traded at 56NOK last week, and are just beyond the bottom of the cycle, with forecasts of 65NOK for our exporting period. Again to reiterate my point, the actual price we are getting is HIGHER because we are getting a premium from China. For every +10c EBITDA/KG margins on exports, it improves Free Cash Flow by $1.3m. Note that $2.40/KG in my estimates is based on ~60NOK.

I have assumed air freight charges remain at their highest levels, and in fact increases in FY22 because of the volume. Reality is, that FY21 was $2.30/KG I think, and China is actually cheaper around $1.70/KG. Further we should have easing of air freight in 2022 calendar year - just go look at Qantas' capacity on those routes as an example, they are ramping up. So we could get a few extra bucks from here.

I looked at Free Cash Flow, not NPAT. I think NPAT is a bit tricky because of one-off items, taxes, etc. Also it's FCF that will be used to repay debt, pay out CAPEX, etc. So with the unwinding of inventory, we should get a temporary sugar rush in the cash flow statement. But as we get into FY23 with no air freight costs, increasing productivity / prawns, etc, we could actually maintain if not increase out FCF from FY22...

Expand

I didnt factor in a reduced inventory, because i suspect they want to keep it a high'ish level to better develop the value added, branded sales.

I assumed they would sell all they plan to harvest (on a net basis), so 40kt sold, assumed domestic steady at 28.6kt, which leaves 11.4kt for export for the year, based on past history about 70% of full year export happens in H1, which gets me to 8kt.

I used an average price of $14.7 for the half, and a cost price $9.52 (Price/kg-EBITDA/kg) which is the same as domestic cost last, but higher than the 8.80 in H1 last year.

So 8kt at $5.10 EBITDA/kg = $41m EBITDA for the half.

Corresponding half last year was $8.8m EBITDA, so an improvement of $32.2m, Depreciation, Amortization or Interest shouldn't change per kg since then, so it all falls through except for tax.

We usually dont pay 30% tax, but i have to assume that because its a bit beyond me to guestimate less.

$32.2m minus 30% = $22.5m NPAT, divided by $212m shares = 10.6cps

An error might be i used the average price of $14.7 based on Chinese prices and the average Q1 being marginally higher than the price for the half, but i forgot that Chinese prices are a bit above our overall export prices, so that could be an error of 20%, but i have to go back and guestimate more or wait for worldbank data for their q1 picture.

I didnt factor any increase in domestic prices, despite possible pricing pressure due to competition from exports.

My H1 export price is a lot different from dabozza full year price, that would be the main source of different views.

TGR Price at posting: $3.47 Sentiment: Buy Disclosure: Held
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3 Great analysis

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