DNB Markets believes price expectations of salmon are too high

Andreas Witzøe

“If you really want to be in salmon right now, we think Austevoll Seafood and Lerøy Seafood are the best alternatives,” said DNB seafood analyst Alexander Aukner.

After a great start for the salmon price in 2019, increased harvest volumes sent salmon prices down in week 11. The DNB Markets’ seafood analyst believes the price is still too high and that it will continue in 2019.

“We believe it is time to profit from the salmon sector now. The share prices are hovering at “all time high” while at the same time we believe the offering will be higher and the demand lower than what is the basis of expectations in the market,” said Aukner.

Well under consensus
DNB Markets’ new estimates for the salmon price are now NOK 56/kg (EUR 5.7) for 2019, NOK 55/kg (EUR 5.6) for 2020 and NOK 57/kg (EUR 5.8) for 2021. Something that is somewhere between NOK 5-7 below the consensus.

“As a result, we are 16-20 per cent below consensus for earnings per share in the 2019-2021 estimates. The companies will still have great earnings with my new price estimates, but when expectations lie at NOK 61-62/kg (EUR 6.3 – 6.4) it will be seen as a disappointment if the price ends in the mid-50s, as I think it will,” said Aukner.

Doesn’t believe in high margin producers
“Since we believe price expectations are too high. For the most part, we have mostly sell recommendations in the entire sector,” said Aukner.

If he still had to pick someone, Austevoll Seafood and Lerøy Seafood are the ones that stand out.

“If one is to have exposure, we believe they are the best options. They have relatively less salmon exposure and a high contract share. Normally, producers with high margins such as SalMar and Bakkafrost would be better off when prices fall, but due to high multiples, we are afraid of multiple contraction for these two companies,” said Aukner, adding that they still have buy recommendation on Atlantic Sapphire, but that’s a special case.