Time for salmon

Time for salmon

18 May 2022 from Mikael Syding

It is not time to bottom fish stocks large and wide yet. This decline is too reminiscent of what it was like after the IT bubble in 2000 and the house bubble in 2007 for it. It is simply different now from what it has been since the central banks started with QE 13 years ago. Thus, it is as it has always been on the stock market, with excesses and growing optimism for about ten years followed by a substantial decline for a year or two. Nothing new under the sun thus.

As usual, it is also to be expected that the most intense upswing phases will take place during the downturn year. Then it is important not to get carried away and "buy away", ie get rid of your dry gunpowder too soon. I think that the coming weeks have the potential to be such a captivating bounce. The feeling of capitulation the other day, with crashing cryptocurrencies and many of the winning stocks since April 2020 digging deeper and deeper price bottoms, was just what was needed to create an upturn.

However, as I said, I think we will only see rising stock markets for a few weeks. When it pulls together for the next Fed meeting with another 50-75 point increase, the selling pressure is likely to return. Those who are selling now have in fact started processes that are difficult to stop. This is partly about outflows due to price falls, and partly about weighting between shares and bonds when interest rates rise. Thus, the bounce will above all be an opportunity to get out of the shares you did not have time or could not sell while it collapsed, and for the really brave to shiny some of the expensive technology shares that rush upwards the most.

But, what I especially think you should use the year for is to look for really sustainable investments among cheap quality stocks that are thrown out along with the air castles. There are, for example, Norwegian salmon shares. Vontobel has a flexible tracker, TRACK FISHING VON, which provides a broad exposure to the Norwegian fishing industry, but you can of course fish up individual holdings as well. The companies in the industry are in all sizes, from Salmones Camanchaca (NOK 3 billion) and Norway Royal Salmon with just under NOK 10 billion in market value, via Austevoll (SEK 28 billion) and Leröy (SEK 49 billion), to the industry dominant Mowi with NOK 123 billion in market value. The different companies are valued very differently in terms of Price-to-Sales ratio (P / S). For example, Salmone's Camanacha and Austevoll are only 1x sales, while SalMar (NOK 79 billion) is valued at 5 times sales. At the same time, Camanacha is most expensive in terms of Price-to-Earnings (P/E) ratio (42), while most others are around 18-22 times the profit.

Austevoll presented its Q1 result today, Friday the 13th of May, which caused the price to fall 10%. Basically, the report showed stability, but when many investors wanted to chase a bounce in high-beta stocks, fish simply did not look as interesting. It may well be the other way around when the general downturn continues later this summer and many prefer to look for safer businesses. Salmon is a long-term sustainable growth industry with rising volumes and prices, a good hedge against both inflation and demand for non-terrestrial protein. With a P/E ratio of 13 and an Enterprice Value-to-Sales (EV/Sales) of 1.5 (Price-to-Sales P/S is only 1.0 so Austevoll has a decent loan, which can give a good leverage on the result as long as interest rates do not rise too much) and a growth path far above GDP, Austevoll looks very appetizing. The reason why the valuation is not higher is probably mostly that the company only has SEK 28 billion in market value. The question is, however, whether this company can not be acquired instead, either by a private equity player or a competitor. In any case, it could be far too cheap to continue like this.

@Mikael Syding

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26/01/2023 22:46:30


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