"Heightened risk profile near-term but leveraged to a global demand recovery TGR's result was broadly in line with recently downgraded UBSe (link) as COVID impacts on both domestic and global (export) markets saw significant impacts to demand and pricing. We see a high probability of an export pricing recovery over FY22- 23E (note Fish Pool forward contract pricing, Fig.4), but we believe near-term earnings risks exist across the broader business with debt levels likely to remain elevated ($377m growing to $412m in FY21E, albeit with ~$100m headroom). TGR is reducing growth expectations and minimising unnecessary capex until its outlook materially improves. Export markets are the primary challenge near-term with TGR delivering greater export volumes (1H21 +74% on pcp) due to growth from domestic players and soft wholesale/foodservice markets. Salmon export EBITDA/kg was down 25% on pcp to $1.52/kg. Export EBITDA of $9.5m excluded additional export freight charges of ~$10m, net of government assistance, which was removed from the underlying result. We expect these challenges to remain into 2H21E with operating NPAT of $23.5m (- 30% on pcp and vs 1H21 of $28.3m). FY22E recovery sees TGR's PE drop to an undemanding 11x, albeit we see heightened risks near-term. Cash flow and balance sheet remain in focus but dividend to remain TGR's cash flow generation and debt profile are in focus near-term. We expect 2H21E OCF to be in line or modestly ahead of its 1H (UBSe $45m vs $42m) as: 1) Prawn sales are less disrupted compared to the pcp; 2) Inventories unwind; and, 3) Biomass growth is minimal (largely flat). Capex is expected to moderate into 2H21E to $37m (from $68m in 1H21) and $82m in FY22E. Lease repayment is expected to remain flat at ~$52m pa. Under our current estimates we see TGR's debt levels at elevated levels medium-term (1H21 at $377m & FY21E at $412m) however TGR noted adequate headroom with facilities of ~$509m. We see FCF in FY22-23E funding TGR's dividend not debt repayments, unless a larger recovery takes place, this requires follow-up"
TGR Price at posting:
$3.30 Sentiment: None Disclosure: Held
