I believe the recent drop in Tassal Group’s share price (TGR.AX) due to short selling is against company fundamentals and world population dynamics. This presents a favourable top-up point for value investors out there.
Salmon prices are again on the rise in preparation for the Christmas and New Year period after the recent dip due to Norway selling sea-lice affected supply into the market.
Over the long term, population growth in Australia (to which Tassal mainly sells its fish) and the world is expected to cause demand to further outstrip constrained fish supply, thus keeping upward pressure on salmon HOG prices. Tassal has risk mitigation strategies against warming sea surface temperatures such as the selective breeding program and plans to introduce fortress-style pens further offshore in the future where water temperature is much cooler and currents stronger.
At $3.90, the fully franked grossed up yield is 5.49%. Together with an operating margin at 17.82%, RoE at 12.47% and current ratio of 3, I believe TGR is much undervalued at the current share price.
In the medium term I would expect TGR to correct to the upside and trend like its Norwegian rival Marine Harvest (MHG.NO) which is up 45.57% over the past year.
Target price is A$6.00
Have a good day
Ninja Tuna of the Bering Sea
TGR Price at posting:
$3.91 Sentiment: Buy Disclosure: Held
