Introduction to Tassal (ASX:TGR)

Tassal Group Limited (ASX:TGR) is involved in the hatching, farming, processing, sales and marketing of Tasmanian Atlantic Salmon. Its operations are based on the west coast of Tasmania. The company is the largest Australian producer and marketer of salmon. We have researched the ethical aspects of fish farming, including the possible effects of antibiotics on consumers. Tassal comes up positively. The company even gets a tick from local environmentalists and the local green politician.

At face value, there is good financial value in TGR. Over the last three years the Cashflow has been growing steadily at about 22% pa. Earnings per share, however, have been flat. This is because they have spent a lot of money upgrading their physical systems which is generated ongoing depreciation. Most of this expenditure is now behind them. Growing Cashflow plus declining capital expenditure is producing growing Free Cashflow. On a share price of $1.40 the PE is just 7.3. Dividend yield is 5.7%, covered by earnings 2.4 times. Tangible Assets of $1.33 are about the same as the share price. These figures represent good value. However, the company has two problems.

First, Tassal are competing with farmed salmon from Norway. The high Australian Dollar is putting Tassal’s competitiveness internationally at the margins. (They have been making up somewhat by successfully expanding the Australian retail market for salmon.) Second, and this is perverse, they are a green stock being negatively impacted by climate change. The water on the west coast of Tasmania is becoming warmer each year, causing Tassal’s salmon to take longer to reach to maturity, incurring additional costs.

The former problem could be solved by an Australian dollar below $1US, The latter is more intractable, though they are at the forefront of research to find solutions to the warmer water problem.

These problems are reflected in the continued slow decline in Tassal’s share price, despite the value there based on the financial figures.

Research provided by
August Investments Pty Ltd
(August Investments holds shares in Tassal)

Want to get my best research first? Sign up here for free.

Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedIn

Leave A Comment