Valuation of Grieg Seafood ASA

Abstract

Introduction of Grieg Seafood Grieg seafood is one of the leading Norwegian salmon farming companies, in regards to both harvested volume and production. They also have operations in other regions such as Shetland and BC Canada. The company’s total harvested volume in 2015 was 65 400 thousand tons, divided amongst 108 farming licenses. The salmon farming industry is a highly cyclical industry, where the main value driver is the salmon price. Salmon prices are highly affected by changes in supply and demand. Increased volume and license utilization Grieg seafood are expected to increase their harvested volume to around 70 000 thousand tons in 2016. This is due to higher utilization of their current licenses, and we also expect to see result from their new “green licenses” acquired in 2014. Prices are expected to remain high in 2016, so increased volume is expected to have a positive effect on Grieg seafood’s profitability. Decreasing supply growth and high demand keeps prices high In the short-term, growth in salmon supply is expected to be negative in 2016 and increase a little in 2017. This in combination with continuously high demand growth will keep salmon prices at a high level in short – to mediumterm. Increasingly cost efficient Grieg seafood are implementing specific plans for becoming more cost efficient in the years to come. This, in combination with expected stabilization of fish feed prices, could have a positive effect on their profitability. Buy recommendation Our estimated value of Grieg seafood revel that there is potential upside in the share. Our estimated share price is 47, which implies an upside of around 10%. The overall consensus in the market supports our conclusion that Greig Seafood is undervalued (04.04.2016).