why is Tassal so cheap? what am I missing?, page-3

I went through that stage as well, seemed too good to be true.

Prawns will provide significant growth in earnings, there are execution risk though, maybe things wont go as planned, but i see management as fairly conservative and treading carefully, eg. slowdown due to covid, so im confident they will pick up on problems early.

There is a huge prawn project called 'Project Sea Dragon' which has support from government grants and offshore partner, they say they are aiming at the export market, it could in theory compete with our prawn expansion. However its been in planning for a long time though, very slowly getting going (and no certainty imo), and will likely have higher costs due to its remote location, so i dont see it as a big risk to us.

There is also, in theory, risks from Land based Salmon farming increasing production and ultimately reducing export prices, which is currently 15% of our market, but again, that technology hasnt been perfected yet, and the current players dont talk about prices yet, just that they hope to be competitive when they scale up.

One big advantage we have that i think is easily overlooked (i dont really know it very much) is our distribution channel which we got from DeCosti, it gives us eyes into the market and can provide more certainty to our customers about delivery. Its a big part of how management justified the expansion into prawns, they had good insight into imports, domestic production and prices.

Prawns could take a painfully long time, they are planning 20kt by 2030, and prawn EBITDA was $6.12/kg in FY20, that would become $122m EBITDA in 2030 vs $123m from Salmon in FY20, so it can become as significant as Salmon is now, so its significant growth and its reducing risk due to different products.

Much of the expenditure on Prawns has already taken place, with land acquisitions etc, hopefully we can get to a stage where its not a drain on cash-flow and future expansion can be paying for itself.

I am not concerned about debt levels in the current or foreseeable economic environment.

Being a price taker is a weakness, but we have seen how management responded to last years low prices, more of it got frozen rather than dumped, with inventories up from $74m to $135m last half, and there has been opportunity to unload at good prices recently.

There are also risks from disease, and mortality from higher water temperatures, and some risks that protesters influenced by propagandists instigate political problems.

I dont know where growth might come from once prawns are under control (which could be a long time), but we will be coming from a stronger place, it could be a long ride.