More than 36% of fish in the Grieg’s most important farming region were downgraded due to presence of parasite.
Norwegian salmon farming giant Grieg Seafood faced significant challenges in the fourth quarter of 2023, underperforming financially with earnings before interest and taxes (EBIT) of NOK -67 million (-$6.3 million) against an anticipated NOK -21 million (-$2 million), and an EBIT/kg of NOK -3.1.
Compounding these challenges, the Spironucleus salmonicida parasite has presented significant challenges to the company, and is estimated to have cost the company around NOK 900 million ($90 million) since 2022, according to the company’s quarterly report published last week.
The parasite was responsible for downgrading the quality of 36% of fish in the Finnmark region, Grieg’s most important farming area as well as by 14% in southern Norway, and 3% in Canada.
Spironucleus salmonicida: Inside the ‘salmon killer’ parasite
In Finnmark, the parasite contributed to a 15% shortfall in harvests and a spike in farming costs to NOK 64.70 per kilo.
The parasite’s impact is expected to persist into mid-2024.
“Our results in the fourth quarter were affected by continued weak biological development in Finnmark. The spiro parasite, winter sores and jellyfish have affected survival rates and operational efficiency in Finnmark and led to reduced volumes, increased handling costs and lower price achievement. I am not satisfied with the results, and we have taken measures to meet the challenges both in the short and medium term,” said CEO Andreas Kvame.
In an effort to halt the damage from the parasite, Grieg has invested NOK 70 million ($6.7 million) in UV treatment and purification systems, securing water intake to its freshwater smolt facility at the end of last year.
“All fish transferred to the marine facilities in 2023 were Spiro-free, and we expect the Spiro effect to cease after we have slaughtered the last groups of fish from the 2022 generation during Q2,” said Kvame.
Nevertheless, the company’s reduced volume forecast and ongoing struggles with the Spiro virus have led to a shift in the financial market’s perspective on Grieg Seafood.
Downgraded
As a consequence of the results, several analysts have revised their forecasts and price targets for Grieg Seafood.
Arctic Securities has reduced its price target for Grieg Seafood from NOK 60 to NOK 54, reiterating a sell recommendation. They highlight a substantial decrease in their earnings estimate for 2024-2025, with a 24 percent reduction for 2024 and a 1 percent reduction for 2025. Furthermore, the earnings per share estimate for these years is down by 31 percent and 11 percent, respectively. Arctic Securities attributes these lower earnings estimates to increased financing costs due to higher than expected net debt, positioning them 33 percent below the consensus for 2024’s EBIT and 24 percent for 2025.
Other brokerage houses have also adjusted their perspectives. Carnegie has lowered its price target slightly from NOK 61 to NOK 60, maintaining its sell recommendation.
“We have cut operational EBIT estimates for 2024 and 2025 by 14 percent and 9 percent respectively, mainly driven by several quality problems and lower volume in Finnmark, where we assume a 50 percent downgraded share in Finnmark for the first half of 2024. Adjusted earnings per share the effect is more moderate at -3 per cent and -5 per cent for 2024 and 2025 respectively, as we assume a lower effective salmon tax. We believe it would be best not to pay dividends for 2023 given the high level of leverage,” writes the brokerage house.
Meanwhile, Nordea Markets, despite reducing its price target from NOK 85 to NOK 75, continues to recommend buying the stock. Danske Bank has taken a similar approach to Carnegie, lowering its price target from NOK 64 to NOK 55 and keeping a sell recommendation. In contrast, DNB Markets remains more optimistic, reiterating its NOK 80 per share price target and maintaining a buy recommendation.
“The large smolt strategy in Rogaland has shown clear positive effects, which gives optimism that Finnmark can improve operations as smolt capacity increases”, writes DNB Markets.
