Overall, I didn't feel there was anything shockingly good or bad in the results. A missed opportunity here and there, but most things explained well in the conference call. I have no idea how the market reacts, but the long term strategy is being implemented really well.
Salmon harvest: Over 40,000tonnes (+16%) is a massive effort, and even brought the cost down, so well done to the team here.
Salmon revenue: Up only 3.3% which is really disappointing. They didn't clear enough of their inventory from March to June 2021 into the export market.
Salmon EBITDA margins: Declined 11% largely due to exports, and mainly for operational issues that almost all their 8,000t exported was at the lower prices pre March 21. Also the loss of low margin / high volume 'Retail behind the counter / DELI' to Petuna - not great, they tried to talk up how this improves their flexibility for higher margin domestic wholesale when it returns, and that in the long term the focus is on growing Tassal / Private Label MAP.
Salmon air freight: -$16.4m. They separate this as 'significant one off costs' in the cash flow statement and don't include it in their EBTIDA calculations which is not right. Anyway, it has been increasing (from around $1.60/KG in 1H21 to $2.30/KG in 2H21) largely because flying to different locations. Problem is, it won't go away. Additional focus on China in 1H22 could see it go back to lower levels.
Prawn harvest: BOOM, 3915t is amazing and only just shy of the 4000t outlook. Moreover, they are doing it at lower cost and larger size (increases the cost: e.g. large sell for $22/KG, extra large sell for $28/KG at Coles).
Prawn revenue: Up 44% which is fantastic effort. Now accounts for 8% total revenue.
Prawn EBITDA margins: Decreased to $5.13 but I reckon anything above $5 is a huge win, so very happy. Total EBITDA contribution up 33% to $17m, accounting for 12% of total EBITDA.
Depreciation: Increased from $38m to $58m, and this is what the shorters flagged - to me it's not much of an issue, and people should model ongoing depreciation levels at around $70m when you include license costs. Definitely, not "shocking" enough for Tassal share price to collapse, for them to need to do another cap raise, or any other bullocks.
Inventory: Salmon biomass up $21m; finished goods ready for sale up to $43m (this is perhaps $20m higher than it should be, partly because commercial scale up of prawns); freezers at December 2020 had 7000tonnes and now have 5200tonnes, and this reflects not selling enough into export markets at the higher prices.
CAPEX: Reduced from $138m to $105m which is good, and 70% of it is growth. They reckon that $50m is 'maintenance CAPEX' or sustainable level, but reality is it's closer to $70-80m as some of their "growth" I would consider "maintenance". Next year they are targeting $80-90m CAPEX while increasing output, so that's good.
Cash Flow: Operating cash flow looking good at $60m, up 22.4%. Hoped for more, but they missed a trick - won't be making that mistake again.
Huon: Interesting comment from Mark was he thought at $3.85 for Huon, Tassal is underpriced; for new owners to get their money back he expects them to need to invest in CAPEX and increase prices, good for TGR.
Outlook: NPAT for FY22f consensus is $60m. That'd put them on a PE of 12.
Outlook (my quick calcs for operating cash flow): +1000t of prawns (+$5m), +30% export price for salmons (+$10-25m depending on air freight costs), reduced prawn finished goods in inventory ($15m), reduced salmon finished goods in inventory ($5m), reduced growth CAPEX ($20m), increased interest expense (-$10m). So while statutory NPAT may be +$30m, operating cash flow could be +$45m.
Overall I think this shows the long term strategy and opportunity with Tassal. They're still feeling headwinds from Covid, and despite missing a trick with selling down more of their salmon inventory into export market, they still are growing.
TGR Price at posting:
$3.51 Sentiment: Buy Disclosure: Held
