Cracking the hype of land-based salmon farming stocks : investments in land-based compared to conventional salmon farming stocks

2020

The purpose of this thesis is to explore the differences in how investors value land-based

compared to conventional salmon farming stocks, and how investors’ sensitivities vary

between the two industries. This study conducts three statistical analyses and a relative

valuation, where each of them are supported by a qualitative analysis based on interviews with

28 market participants. Supplementary views are included to further explore how investors

value the land-based salmon farming industry.

First, we examine whether there exists significant differences in how fluctuations in salmon

price impacts land-based and conventional stocks. Our findings suggest that the salmon price

impacts the valuation of conventional stocks significantly more than that of land-based stocks.

These findings are supported by market participants, who argues that land-based stock

valuations are mostly dependent on the binary outcome of success or no success rather than

fundamental factors of profitability, such as the salmon price. Second, we conduct an event

study to examine whether there exist a significant difference in the stock price reaction as a

result of acute mass mortality events in the two industries. Our findings suggest that investors

are significantly more sensitive to events occurring in land-based facilities. Market

participants experience this to hold true, as such negative events represents a threat to the

overall probability of success for land-based companies, while similar events in conventional

salmon farming are seen as “occupational hazard”. Thus, investors seem eager to sell its landbased

shares quickly when these events occur. Third, we examine whether the price

development of land-based salmon farming stocks are better explained by ESG, sustainability

or technology indices compared to the seafood or the broader OBX index. Our results indicate

that the OBX index best explains the price development for land-based stocks. However, the

Seafood index performs poorly when reviewing its explanatory power to land-based stocks.

This implies that the valuation of land-based and conventional salmon farming stocks differ

substantially. Lastly, we conduct a relative valuation to examine how investors value stocks

in both industries. This valuation show that most of the guided volumes from management of

land-based companies have already been incorporated in stock valuations, and that, with the

current pricing, investors believe in a high probability of success, thus incorporating little risk.

Our findings are however limited by the amount of available data, as well a limited number of

listed land-based companies. Hence, we cannot conclude the persistence of our results in the

future.