Tassal Group Strategic Thoughts, page-139

Thanks for all your photos and research there @Aqua65

The share price is sort of trading aimlessly, and I am not sure that there is anything in the near future which is going to be the catalyst for a rerating. The challenge we have as investors inTassal is that we have a relatively high multiple based on historic earnings due to Covid-19 (PE=20 based on trailing 12 months). Meanwhile, we have dividends that have declined - while they had been growing over the past five years ~5% CAGR on top of the 4% payout (=9% returns, not too shabby), they got cut by 23% due to Covid impacts which takes us back to 2015 levels.

Compounding this problem, there are two analysts covering Tassal. We have more knowledge and insight in this forum than what those analysts can provide institutions and retail investors. And their consensus in the short term is not very positive. For example, one analyst thinks revenue in FY22 is going to be around $640m (plus $50m on the FY21 which was severely impacted by Covid), increasing to $688m in FY23. Similarly, this bloke thinks earnings per share is going to bounce from 23c to 27c in FY22, and then 28c in FY23. None of that growth really would justify more than the current PE=20 if you believe that story. The other analyst has us at 31c in FY23, which is more bullish but still probably conservative.

But, that's not the whole picture. That analyst doesn't really factor in the reduced inventory from Covid-19 that is currently happening; doesn't factor in reduced CAPEX requirements in the prawn story; doesn't fully factor in the improved market conditions (albeit with freight cost headwinds) for salmon domestically and internationally; etc. However despite that, the two analysts do agree that in five years time when prawns are more substantial than now, things will be rosey. Indeed, their average for 5yr growth is 15.1% CAGR including the bounce from normalising earnings post Covid-19 and the growth largely in prawns.

The forward PE at today's price is 12.2. Factoring in at 15.1% CAGR, and you get a PEG ratio of <0.81. That's a pretty cheap valuation for a bottom-cycle moderately-growing company that's about to massively increase it's free cash flow as CAPEX reduces. Personally, I think this is what the market is not factoring in.

Using the Chowder Rule, investors should be able to get 4% Dividend Yield + 15% Earnings Growth = 19% return. Compare that to Coles: PE=23, PEG = 7, and 3.5% Dividend Yield + 3.5% Earnings Growth = 7% return. And yet that's where all the super and funds are flowing to.

Patience. My guess is that a re-rating will require increasing dividends supported by a substantial increase in cash flow: 1H22 or FY22 Annual Report? And when it is re-rated, it will probably be like 2012-14. Small cap value will have it's day, and this beautiful company will shine.

GLTAH.