Valuation and Strategic Financial Statement Analysis of Marine Harvest

Simen Sunde & Azhar Choudhry

Student thesis: Master thesis


Since the start up in 1965, MHG has experienced a significant economic growth. The company has become the largest producer of Atlantic salmon, where they control approximately 30% of the global market. They attain a fully integrated value chain, which covers the salmon’s entire life cycle.
The global aquaculture industry has been characterized by strong growth the past years. The cyclical nature of the industry and the supply-demand relationship has resulted in a highly volatile spot price of salmon. The industry has been further characterized with a high degree of consolidation, disease outbreaks and globalization
Our analysis revealed that the supply side is faced with numerous challenges in the years to come. Based on low growth in smolt releases, a decline in standing biomass, mass mortalities in Chile and disease outbreaks in Norway, we expect a decline in supply for the short-term. The overall demand of Atlantic salmon has steadily increased the past years, and this trend is expected to continue. Short term demand is expected to increase, due to the drop in global supply combined with a favorable exchange rates. For the long term, we believe the situation in Chile and Norway will normalize resulting in more stable supply and prices of Atlantic salmon.
Most of the variations in MHG’s ROIC and profit margin is due to changes in core operations, as the turnover rate on invested capital have been fairly stable. Furthermore, our common size analysis revealed that exchange rate effects, combined with increased raw material prices have led to increased cost of feed. In addition, increased salary cost and cost related to disease outbreaks had a major impact on the company’s profitability the past few years.
As the industry is experiencing strong demand, harvest volumes and salmon prices are the company’s main revenue drivers. Based on a multiple regression 84,1% of the variations in salmon price is explained by changes in supply and demand. Our strategic analysis showed a negative relation between supply growth and increased salmon prices and a positive relation in salmon prices with demand growth.
In order to determine the MHG’s share price per 01.04.2016 we applied the DCF-and EVA framework. Both these models yielded a price of 174,115 NOK per share. The company’s shares currently trade at 128,10 NOK. Based on this, we believe that MHG is undervalued and could potentially yield an upside of 35,9%. This would imply a buy recommendation to potential investors. Lastly, our sensitivity analysis uncovered that MHG share price is highly sensitive to changes in salmon price, harvest volumes, cost of materials and WACC. Where changes in salmon price had the largest impact on share price.

EducationsMSc in Finance and Investments, (Graduate Programme) Final Thesis
Publication date2016
Number of pages174