The Norwegian Salmon-farming Industry in 2016: An Empirical Case Study of Grieg Seafood

Carl-Emil Akselberg

Student thesis: Master thesis


The scope of this thesis has been to investigate the key value and cost drivers in the salmon farming industry, as well as applying theories and models to an empirical case study of Grieg Seafood with the intent of estimating the market value of the case company.
The salmon farming industry is an important industry for Norway and have become increasingly consolidated in later years. The industry structure now consists of a group of large global players, with GSF currently being among the top ten. The salmon price is set based on the equilibrium of supply and demand, and the spot price is the strongest value driver in the industry. Supply is affected by many factors, and salmon farmers are for the most part price-takers on market prices, due to the length of the production cycle. The largest cost component is feed costs, which is a direct input to production. The second largest cost group is other operating costs, which is effectively costs related with biological issues, diseases and lice-mitigation measures. The relative importance of this cost item is increasing in the period analyzed. There are increasingly shifting consumer demands which leads to new preferences for salmon products. Potential disruption in the industry could come from the advent of land-based salmon farming. There are high entry-barriers to the industry and high intensity of rivalry. Customers and suppliers have only moderate bargaining power over the participants. GSF is a family-controlled company with a long-term perspective of ownership. The company’s management are characterized by having well-rounded industry experience. GSF’s physical resources consists of its location and there is substantial potential for increased utilization of current licenses. GSF is a vertically integrated salmon-farmer, and on par with most of its peers. The cost of capital for GSF have been calculated based on an average from various estimation approaches. The same holds for the estimation of GSF’s specific risk.
GSF is overall a low-tier performer in operational profitability relative to its peers but is on an increasing linear trend in the period. GSF have moderate liquidity risk, mainly stemming from the fact that it is higher leveraged than its peers. The pro-forma estimates assume a spot price similar to levels achieved in 2016, and better utilization of GSF’s excess capacity. Harvest amounts are delayed somewhat compared with GSF’s growth strategies. The valuation is conducted using the present value approach, with the application of DCF, EVA and a selection of multiples. GSF is found to be undervalued, and the estimates are checked in a sensitivity analysis.

EducationsMSc in Accounting, Strategy and Control, (Graduate Programme) Final Thesis
Publication date2018
Number of pages124