Oh my gosh, the market is fraying at the edges. The inventories...

Oh my gosh, the market is fraying at the edges. The inventories have been worked through, supply has fallen in a lot of areas, and demand just continues to increase. We saw this happen in some other natural commodities (American lumber in 2021 was probably the most famous, but even beef is up ~30%), and it seems to be happening in salmon.

The prices are clearly beyond belief. And as silly as this sounds, we're only just getting into the southern hemisphere's export window now. Typically Tassal exports substantially more in the summer months as they start pulling the fish out of water with increasing sea temperatures marking the end of the fast-growing period of salmon. The exports happening in 1H were clearing the inventories from Covid - and relatively speaking as a % of total production, Tassal had more left over coming in to 1H than any other company I am aware of. Big freezers, and management didn't panic sell.

90NOK.. what a joke. This has actually broken my models where I stopped doing sensitivity analysis at 70NOK average. I think I mentioned before that at these levels, even with additional air freight costs, I expect Tassal will start to divert un-contracted domestic sales into the export market as long as there is enough air freight capacity.

Quick look at the numbers. Expecting 40-41kt to be produced. Inventory was 7kt and will be reduced to 2kt (working capital), so that's another 5kt of sales in FY22. Total sales to be 45kt. Domestic demand is 28kt normally. However, while some of the BTC-Deli contracts are for 3-5yrs and they have to meet those obligations, in FY21 they reduced the total contracted amount (lost bids to Petuna / Huon that undercut during the crisis). They also could redeploy some of the 7kt wholesale hog. But even if we say that remains at 28kt domestic, that leaves 17kt for export. Perspective: 2020 was 6kt, 2021 was 8kt.

So looking at potentially +112% export volume and domestic volume flat. At 65NOK I had it as +40% export prices, but now looking closer to +60%. That's +340% on FY21 export revenues or increasing from $88m to $300m. And that checks out with the trade data, which shows around +US$120m in salmon exports in 1H22 most of which is Tassal.

Convert all that to EBITDA, for every 10NOK improvement in the average export price, it flows to around $26m of EBITDA. In FY21 we got around $10m of export EBITDA. At 55NOK in FY22 we should be $20m. At 65NOK (my old base case) we get $46m. At 70NOK (my new base case) we get $60m. 75NOK looking really possible now, that's $73m. At 90NOK this week alone, it's around $2.2m.

Overall my models spitting out ~$180m EBITDA (up from $120m) and ~$110m operating cash flow (up from $50m) and ~$70m free cash flow (up from -$3.4m) for FY22. My guess is that the EPS consensus of 29c for FY22 is going to be low, and I wouldn't be surprised if it is closer to 34c and up to 37c.

Compare this to 2017. After a bit of a dog of 2016 year, export market picked up (hard to see in Bug's graph, but it's there). Export revenue grew from $13m to $44m, and drove profit before tax up 25% from $68 to $85m. And that was despite volume dropping 6% that year. Meanwhile, the share price didn't do much then, so take it with a grain of salt. The cyclicality of the export market is not my investment thesis for Tassal, but it's a nice kicker for FY22.