Handelsbanken believes high salmon prices may curb growth in demand

Andreas Witzøe

Kjetil Lye, Seafood Analyst at Handelsbanken Capital Markets, believes in further growth and predicts record prices in both 2019 and 2020. However, he believes high prices help curb demand growth.

“We have an estimate of three to four percent offer growth globally next year. A similar growth in Norway, and stronger growth in the UK. On the other hand, we think there will be some reduced volume from Chile in 2019,” said Lye.

Handelsbanken expects a similar growth in 2020. If the record high growth of demand (currently up to eight per cent) continues as expected, Lye sees a tighter market in the future. Pareto Securities believes that salmon will be EUR 62 NOK per kilo in 2019. Lye calls, and raises.

“We estimate a price of NOK 62.5 (6.4 EUR) in 2019. For 2020 we estimate NOK 63.5 (6.5 EUR) and we still see an upside risk on the price of salmon. Over time, we think it’s going to be even higher,” said Lye.

Surprised by the strength of the salmon shares
That 2018 has been as good as it har for the salmon shares has come as a surprise, also for Lye, he explains.

“It is always difficult to predict how strong prices could be and how high shares can go. I’m overwhelmed by the strength of the movement that has been seen in the sector, especially in the autumn. It’s worth noting that the shares where down a lot towards the end of 2017, so that they came from relatively lower levels and expectations for 2018 had fallen,” said Lye.

And the will investors have had to pay somewhat higher multiples for salmon companies has helped raise the shares. And Lye believes that there is still an upside in the shares.

“The price of shares in relation to earnings is still not high, even though the multiples have increased somewhat. The sector is traded on multiples EV / EBIT for 2019 at eight to twelve times, on our price estimates. Those are levels that are still attractive. We expect strong earnings in these companies where the risk is largely linked to the supply side development of salmon, as well as currency,” explained Lye.

Seeing more potential than challenges
Lye believes higher price levels will slow down demand growth.

“But there is a lot of potential to do more on demand, both in Europe, the US and Asia. Russia is currently at a low level compared to what it has done historically. Although this does not have a significant effect in 2019, it has the potential to drive demand for many years to come,” said Lye.

Where the price limit is dependent on a number of factors.

“There is a clear trend that salmon prices are rising and where the price limits is we just have to wait and see. It will typically be a drop of consumers when the prices rise enough. Where the price limits is depends on several factors such as currency, product development and what one manages to do with segments globally and how much one manages to be present in these,” said Lye.

He states that Handelsbanken has a positive recommendation on all salmon shares. From the smaller companies he picks out NRS as a good buy. He also recommends Lerøy, Marine Harvest and Bakkafrost as good alternatives.


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