Thanks Bug for sharing. As you note, the model looks pretty...

Thanks Bug for sharing. As you note, the model looks pretty optimistic. I think you have nailed the production side of things, though perhaps the capital allocation could be pared back a bit. I don't want to create a contrarian 'group think', so please take my thoughts with a grain of salt.

• Capital employed for prawns seems a bit light - my guess from here is around 2x the growth CAPEX for the 4x production. That's around $360m of capital employed.
• Ergo on the above, my expectation is around $20m of maintenance CAPEX into FY30 based on that too.
• The assumption that Tassal pays down their debt with the free cash flow is unlikely. In fact, while you are right to include net debt at $317m end of FY21, they have a further $118m of headroom and have flagged an intention to use part of it. Mark Ryan has noted they will not reduce their debt to equity ratio substantially (currently 40%). A cynic would argue that debt helps their long term incentive performance payments, and they'd be right (see below the excerpt from the annual report). Debt rather than equity assists in earnings per share by not allowing the number of shares to dilute the earnings (totally agree with this approach). Moreover, their return on asset calculation uses 'EBIT', which is earnings BEFORE INTEREST and taxes. So high levels of interest on debt won't impact their EBIT or ROA. Therefore, borrow as much as possible to improve your earnings and they'll get more remuneration. That's important as a shareholder to be aware that this is a capital intensive and debt fuelled company, which is fine in the current environment in my opinion.
• As per the above, debt will be higher and so will interest payments. Currently around $13m, and expecting this to increase as debt increases and as interest rates increase. The weighted average tenor of the debt maturity is 2.6yrs, and interest rates I think are around ~3.5% (I couldn't source this number, anyone know the details of their debt profile?).
• Note that the lease costs also incur financial costs / interest payments. In 2021, this was around $6.5m. Not sure how it is exactly calculated.
• Total shares outstanding is closer to 214m, not 212m. This is because of performance rights / options, which are around 0.5% comp per annum as they hit their targets (missed in FY21 for example). This will impact your per share calcs.

To look at the share price, a couple of ways one could think about it:

• A fair PE ratio for share price would be around ~12x which is their historical average. Grant Thornton had it even lower in the Huon comparison - I think 9x? Hard to know what it will be in FY30 because it depends so much on their growth profile. If they continue to acquire or expand using their FCF as they have done (e.g. barramundi, more prawns, or seaweed) then it should remain 12+ if they are able to achieve say +12% ROIC. But using that estimate, I'd get closer to $11.50 share price in FY30 based on my NPAT calcs. IF I used an EV/EBITDA of ~10, it'd be around $9.
• You could triangulate the valuation by looking at dividend yield. Obviously there are some interest rate impacts, but a gross of 5% yield is perhaps in the ballpark. That'd make the DPS=34c in FY30 = $6.80. Though I had dividends higher at around 46c, so that would be closer to $9.
• Asset based valuations would be to use book value. I have not bothered with this because it's really hard to determine the capital allocation for the next 10years. But also, it wasn't even important in the Grant Thornton valuation of Huon during the takeover.

Hope that helps. Here's the excerpt.