Fundamental Valuation of SalMar ASA

Herman Høyem Haug & Eirik Ofstad

Student thesis: Master thesis


Salmon prices at an all-time high
Salmon prices surged to an all-time high of NOK 78.75 per kilo in the last year. Plummeting supply and a weak Norwegian krone led to a record-year for salmon farmers, despite low harvest volumes. Looking forward, prices are expected to trend down but remain high, breaking the traditional cyclicality.

Pressured short-term supply and demand, future looking brighter
Norwegian supply is approaching maximum capacity. Prevailing biological challenges and a strict regulatory regime curtails future growth. However, new technology for land-based and open-ocean farming is showing potential. Short-term demand is falling due to unsustainable price-levels increasing the threat of substitutes. Long- term prospects are brighter, with demand set to grow on the back of population and economic growth in low- to middle-income countries especially. Further increase is expected from newly opened markets and a growing VAP-segment.
Biological threats and foreign exchange rates driving costs
Sea-lice remain the largest risk-factor for Norwegian salmon farmers, with no recovery in sight till 2019. Feed costs are similarly high due to a weak NOK and increased input commodity prices. As the sea-lice situation improves and the NOK strengthens, costs are expected to come down in the medium-term.

SalMar – Profitable, but not without challenges
SalMar stands out as the industry cost leader, which will be increasingly important as the industry matures and margin competition increases. However, SalMar’s heavy exposure to sea-lice in Central Norway is driving costs up and keeping harvest volumes low. Meanwhile, there is potential in the form of SalMar’s Ocean Farm 1 project and smolt technology. Furthermore, SalMar retains a competitive advantage in organic salmon. SalMar is forecasted to remain highly profitable; however, we find a slight downside in the share price on the back of a delayed sea-lice recovery profile.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final ThesisMSc in Finance and Investments, (Graduate Programme) Final Thesis
Publication date2017
Number of pages120