TGR (ASX) Why would you short Tassals *now*?

Originally posted by Hopeful9: ↑

dabozza, your research is most instructive. You may be one of few 'HC' contributors who spend an inordinate amount of time analysing one stock, with the knowledge you impart always worthy of a gander. You've stuck your neck out with predictions above.

To risk it being cut off even more expeditiously, do you believe 'Mr Market' (the forward looker that 'he' is) will see the TGR result as poor, reasonable, good or even better (given what I perceive to be the price pressure its scrip appears to have been under of late)?

It's one of my poorer performing investments (Though I tend to forget the dividends, as I'm more focused on capital growth) but I'm not yet a seller as the prawn story isn't an instant one. (Perhaps wrongly, I perceive prawns as being a poor seller during winter and early spring in what can be chilly by our standards Melbourne). Non-BBQ weather.

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Thanks, much appreciated.

I have zero idea how Mr Market responds. I am forever impressed at how irrational the market can be. As someone who invests based on fundamentals of a business, I can only take solace in the fact that in the long run, it's a weighing machine not a voting machine.

Take a look at Murray Cod Australia (ASX:MCA). It is worth a market cap of $200m today ($300m in May 2021), with sales of around 100t at $8m revenue, huge CAPEX required for it's next stage of growth, no known markets domestically or internationally. Yet. The market loves it. If Tassal was priced at the same level (based on revenue, not earnings because they have none) it would be worth $15bn market cap or say ~$50 a share. This is not investment advice to go run out and buy MCA ! hah.

Or take a look at Huon, whom released trading update today (which was really bullish for domestic wholesale and retail salmon prices). They reckon they'll get $20m EBITDA on 35kt salmon across FY21, whereas Tassal should be around $160m EBITDA on 43kt salmon. While we're looking at 8x operating earnings with a greater growth runway thanks to prawns, the reality is that Tassal trades at only 2x the enterprise value or 3x the market cap.

So do I think Mr Market is going to suddenly re-rate Tassal even if their annual report hits all the high notes? Not sure. My uneducated guess would be that fund managers will not take note unless the free cash flow increases by at least 25% - then the dividend yield and PE ratio will probably screen for them to take a look.