Maybe should not have used the word 'fat'
I should not have assumed that biomass is back on track means 'fatter' fish
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Building a position in this one. A bit risky with Blue Endeavour being key I think, also very small MC. Balances out my port which has gotten pretty conservative.
Well, it is on my watchlist, but I didn't yet bite :):
I agree - if Blue Endeavour gets not just approval, but turns out to be successful (which is by no means guaranteed), than they might do very well, indeed.
However - if it does not work out ... then I think they are still ways too expensive for a company trying to rear Salmon in ways too warm waters. The angry crowd of environmentalists does not help either ...
Not that the analysts forecasts are typically worth the paper they print them on ... but according to their forecasted EPS the three year forward PE would be 44. I don't know their working assumptions, but this does not look cheap, isn't it?
Thanks for your thoughts, good to know you are interested.
Craigs have them on a FY24 PE of 16.3 without Blue Endeavour unless I am reading things totally wrong (understand your comment re analysts)
But they also have the company's own internal forecast EPS at 9.62 for FY24 also, which is 14.6 PE. Where is your figure from?
Got my fill and now leaving some aside for the inevitable cap raise for Blue Endeavour.
The forward PE I am working with is the current SP divided by the average of the EPS predicted for the next three years plus the current year. You can take these numbers (for most stocks) from market screener. Obviously - the number for the current year is most accurate (as reported) and the number three years ahead is somebodies most optimistic phantasy.
Let face it - nobody knows what will happen in this timeframe with the climate, with any biological assets (diseases), with the weather (storms), and with the consumer behaviour, nor do people know what will happen with the supply and distribution chain - i.e. any prediction is a joke. As well - three year forecasts are nearly always too optimistic and frequently revised down. This way I bring a bit more reality into my forward numbers ....
Take the numbers from market screener (though I think their 2020 EPS is incorrect - need to check when it matters to me), treat them as proposed and you will reach a similar result as I did ... :);
What makes you prefer this one over NZX:SAN? I looked at both and went with SAN last year, although I horribly mistimed it and paid the price :(. Could be interested in picking some of these up as well but one of the main factors that scared me off last time was the warm waters in Marlborough etc causing issues.
Agree totally Entrap
Its like a one trick pony NZK and a lot of similar competitors abroad not to mention the changes happening in Marlborough & more, I did have it as a buy if it got near 1.40 but revaluated then and went San as it has more options /products and even though its suffering also at the moment has more arrows in its Armory
It depends on how you measure that ... I'd say NZK management is not spotless (if I think e.g. at the CEO's soft skills negotiating with politicians) - and Sanfords management - well, yes, past management made some quite significant mistakes and mis judgements, but they had as well some recent changes. Not sure, I can already pass judgement on the new San CEO. Can you?
I do agree with a previous poster that SAN has more options than NZK in a sector which in general should have tailwind. Obviously - if NZK's open sea farming wins (i.e. getting the consent and working as intended), than they well might be the better option, but what if not?
Quite probably Monarch but the Stewart Island salmon farms are not as warm as king salmon Marlborough farming that is suffering now as we all know hence the big push for deep sea farming already being done elsewhere .
But we all know Salmon farming is not New Zealand ring fenced , everyone is at it & the previously badly managed Sanford Armory is my preferred option with not being a one trick pony.
NZK 1H22 Half Year Results Announcement - NZX, New Zealand’s Exchange
September 30, 2021
NZK - NEW ZEALAND KING SALMON ANNOUNCES 1H22 RESULT
New Zealand King Salmon Investments Ltd (NZX & ASX: NZK) reports its financial performance for the six months period ended 31 July 2021 (1H22). Key points include:
• Small fish size and compensating restrictions on harvest have negatively impacted our result
• The effects of Covid-19 disruptions have been largely overcome with the exception of freight availability and cost
• Revenue of $80.1m, up from $67.0m in 1H21, reflecting clearance of excess inventory and sales recovery ($4.2m clearance).
• Sales volume of 3,629 tonnes compared with 2,745 tonnes in 1H21 (470t clearance).
• Statutory NPAT of ($5.6m), compares with ($5.6m) in 1H21.
• Pro Forma Operating EBITDA of $3.3m, compared with $7.1m in 1H21.
• The main differences between Statutory and Proforma EBITDA profit measurement being ($13.5) FX close-out profits, $8.1m inventory fair value adjustment, and $0.98m FRS16 leases.
Chairman John Ryder said: “Unfortunately it’s been a challenging six months, but we have now initiated our Prescient Aquaculture Model, built on decades of farming King salmon and the experience of our own in-house team. Since the beginning of our new financial year, we have returned to demand exceeding supply”.
“Our premium brands continue to show great strength in building customer relationships and supporting margin growth, focusing on diversification across categories and markets to build resilience.”
New Zealand King Salmon CEO Grant Rosewarne acknowledged it had been a tough period. “During the first four months we made losses, more than fully offset by closing out excess foreign exchange contracts. In June we were back to break even, followed by incremental gains in July of $1.3m (proforma EBITDA), continuing into 2H, with August at $1.6m.
“We are forecasting harvest volumes in the second half of 2022 of over 4,000 tonnes delivering the usual premium prices. We have consistently maintained prices for the core branded portfolio, even through the Covid pandemic. Excess unbranded stock, mainly whole frozen fish, continues to be sold to international customers outside of established branded channels.
“During Covid FY21 we refocused on NZ retail (with heavy price promotions) and developed additional fresh speciality and e-commerce business in the US, which helped get us through FY21. Now, in FY22, we have seen the return of the US foodservice sector whilst retaining the incremental fresh business to deliver improving returns.
“Continuing our innovation program for Ōra King, we launched a limited edition of our new Ōra King Keiji product, which is our interpretation of the famed Japanese Keiji, a premium sashimi or plate-size salmon enjoyed for its unique flavour and delicate texture.
“We also premiered the Ōra King Documentary to offer chefs around the world a virtual experience of our brand, despite the closure of our borders. The documentary https://orakingsalmon.co.nz/documentary/ deepens the story of Ōra King with material filmed across our egg to plate operation.
“Internationally, we have continued to drive demand for our Regal smoked salmon products, and secured three international accolades for our Regal range, including Best New Product across all categories at the 2021 sofi awards with the Speciality Food Association of North America.
“Furthermore, our Omega Plus pet food range continues to show rapid growth with the launch into Animates stores around New Zealand. Annualised revenue is currently running at about $4m pa” Mr Rosewarne added.
“Our aquaculture team continues to investigate and implement solutions for improved fish health outcomes at our sea farm sites. This work is underpinned by our new production model, our own fish health vet, Dr Zac Waddington, and independent science providers.
“In terms of future growth, a hearing has been set in Blenheim, the week beginning October 18 for our open ocean Blue Endeavour application, 7kms north of Cape Lambert in the Cook Strait. This project has multiple benefits - an improved environmental outcome, increase in scale, reduction in operating costs, improvements in fish health and a lift in unit values. If successful, we would expect a harvest in 2024.”
The application is aligned with the Government’s Aquaculture Strategy which was launched in late 2019 with the objective of the industry achieving $3 billion revenue by 2030.
“It’s undoubtedly an exciting time for the industry as the future for salmon farming is in the open ocean. We will need the continued support from all levels of Government and the community to achieve this. We firmly believe that Aquaculture could become New Zealand’s most valuable industry and its greenest primary sector” Mr Rosewarne added.
New Zealand King Salmon will update market guidance over the coming months. The company has not paid a dividend since the Covid pandemic started and this will remain under review.
Ends
Contact: Grant Rosewarne
Managing Director and CEO, New Zealand King Salmon Investments Ltd
Email: grant.rosewarne@kingsalmon.co.nz
About New Zealand King Salmon
New Zealand King Salmon is the world’s largest aquaculture producer of the premium King salmon species. We operate under our four key brands: Ōra King, Regal, Southern Ocean, and Omega Plus, as well as the New Zealand King Salmon label. We have been growing and selling salmon to consumers for more than 30 years. Today we employ around 500 people. New Zealand investors make up a significant percentage of the ownership of NZ King Salmon and the communities of Marlborough, Nelson Bays and Tasman are well represented, with around 400 of the 2,900 shareholders from Top of the South.
More information can be found at www.kingsalmon.co.nz
Hmm - HY 1 was bad (small fish, high freight cost), HY 2 supposed to remedy that (bigger fish?), though freight costs unlikely to change in the short term. Liabilities increased (though balance sheet looks still manageable) and the open ocean farming hearing in October - all depends on the outcome - better hope it goes well.
On the balance of risks and opportunities does this stock in my view still look too dear ... but obviously - it depends on what we know about the future :):
An upgrade!! :eek2:
NZK Market Update - NZX, New Zealand’s Exchange
NZK - NEW ZEALAND KING SALMON – Earnings update
Further to context provided on 30 September 2021 as part of our FY22 half year results announcement (1H22: Feb to July 21), New Zealand King Salmon is now able to provide an update on full year earnings guidance.
The FY22 revised earnings forecast of proforma EBITDA is in the range of $10.5m to $12.5m, an increase from the previous guidance of $8.0m to $10.0m.
Although trading conditions remain challenging with elevated freight costs, inflationary pressure on raw materials and Covid restrictions impacting food services, we have seen a sustained gain in our financial performance. As previously noted, we continue to see an improvement in fish size, due to the change to our farming model.
The Consent hearing for our open ocean farming application, named “Blue Endeavour”, is nearing completion with the last day targeted for 21st December.
ENDS
Awesome, looking forward to trading today
Brutal downgrade
https://announcements.nzx.com/detail/386678
Jeez - EBITDA forecast down by nearly 40% - and this at a time when people started to hope that things should get better after Omicron.
However - warm seawater (and there will be more with global warming) was always their Achilles heel. Maybe they should focus on breeding warm water species instead of Salmon.
How low can they go?
When they say 'To minimise this impact, we are evaluating options to accelerate our existing harvest schedule starting this week.' does it mean they are going to put the poor salmon out their misery ...... ie kill them before the warm water does, suppose that's humane
I've gone off salmon farming
My eggs bene with salmon might be a bit cheaper next i get breakfast out. Assuming this early cull floods the market with cheap salmon?
This is all pretty grim, sadly.
This puts the business on a PE ratio of #errornotcalculatable. This warming events - perhaps a once off a decade are happening every other year and getting worse.
Then there is the southern bluewater initiative. Not sure whats worse - if it goes ahead or doesnt. If it does there will be a huge capex requirement and a *heavily* dilutive capital raise coming. It could take years to accomplish and then you have to sit back and hope you get better fish performance (which may or may not happen - it could be the aquaculture model and a particularly finicky species of salmon).
If it doesnt happen you are left in the status quo with no room to grow and ever rising water temps.
Sad stuff - it a high value add, globally sought after product. Such are the times.
Jeepers, IPO was $1.12 in 2016.
They e had this problem more than once. Weird that it's been a fave of Craig's.
A pretty severe reversal on NZK's early December 2021 announcement.
So factoring in Depreciation Amortisation Interest adjusted for tax looks curiously like FY red ink territory ..
Am I wrong ? ;)
never a holder - shied off on earlier reports of issues.
Yeah there’s really not a scenario where Npat wont be negative (~2-3m) and probably breakeven at best in F23. Echoing my comment yesterday for a capital raising for the blue endeavour, jarden came out and said nzk might need one even without it. And oh dear - estimated spot net debt of 7.0x and 4.0x to FY22/FY23 EBITDA. Very high gearing - how could they not consider doing a capital raise?
If i was still a shareholder i surely wouldnt want to participate in a rights issue anywhere near a dollar
From CraigsQuote:
Josh Dale has maintained his Overweight recommendation on NZK despite Tuesday’s profit downgrade due to a warmer Pelorus Sound impacting fish mortality in the current YE (January) and forward fish stocks. Dale now assumes FY22 EBITDA of $7m which is the mid-point of revised Guidance for $6.5-7.5m from $10.5-12.5m (pre-COVID EBITDA was tracking at circa $25m). The cause of the downgrade highlighted how critical NZK’s Blue Endeavour growth initiative to establish farms on the edge of the Cook Strait (cooler deeper water, faster currents) has become for the company … NZK is still expecting a decision by late March after Environmental hearings concluded in late December. The deep water farm would enable NZK to farm juvenile fish in the more susceptible westerly Pelorus farm during the winter months before transferring into the open ocean sites. Dale’s revised TP is $1.40 which incorporates 18c for Blue Endeavour (c25% of Blue Endeavour NPV).
Aye saw that. And jarden came out with an u underweight at 1.15. I dont believe their f23 forecast for one second and that implies a fy23 pe of 80.
Its my strong belief this company will require a capital raising in any scenario. I suppose brokers dont want to overly piss off management and the board if they want a gig.
Ha you're spot on they will Endeavour to get out before it runs aground .
This PA doesn’t look good for Endeavour at all
Did a brief analysis of this company back in February.
One of the things that stuck in my mind was the massive $13.5 mn cash received for closing out a forward contract early. I wrote to the company for an explanation but there was no reply. Did this place them at risk? Was it a last resort?
This amount put their operating cash flow into positive territory by a good amount. Very material and huge. I couldn't really understand the large amount.
Here's the brief analysis if you're interested. Very basic :-):
https://recastinvestor.substack.com/...aland/comments
That decision must be due any day now... Even if bad, must surely be close to priced in? Feels like someone knows the outcome already PA so trash.
Financial results delayed (but apparently still in forecast range). Still no word on Endeavour!
Press isn't good https://www.rnz.co.nz/national/progr...ter-hot-summer
something smells fishy when you have a halt for results ....
Not a halt, but have a waiver.
NZKS - Amended Results Announcement Date Waiver - NZX, New Zealand’s Exchange
Quote:
In February the Board announced we were experiencing higher than expected sea farm mortality. As noted in our previous announcement, the mortality event will have an impact on our FY23 harvest volumes and our FY22 and FY23 financial results. NZKS is still working through the associated financial impacts of this and will provide a more detailed updated on sea farm mortality and the expected impact on FY23 earnings as part of our results announcement which is now expected to be on or around 13 April 2022. NZKS remains committed to minimising sea farm mortalities and is continually assessing the options available to do this.
Although we are still finalising our financial results, we continue to expect our FY22 Proforma EBITDA to be in the previously indicated range of $6.5m – $7.5m.
Dammnit. Down bad on this one.
based on my back of the envelope gearing calcs and rough and ready EBITDA guesstimates I'd say between 35-50 million capital raise. That's just for the status quo. If they manage to get blue endeavor across the line, even bigger.
Thats a big capital raise relative to the market capitalisation. Which would necessitate a sizeable discount.
Norwegian farmed salmon reached the highest price ever in sales last week and strong ongoing demand.
Looked at the interims back in early Feb. Massive negative EBIT and a 13.5 mn forward contract closure producing a positive operating cash flow when it would have been negative.
Put the unrealised gain on biologicals $30.7 mn further down the revenue statement.
Fish deaths are way up apparently which is why even though GAAP allows it you don't put unrealised gains on biologicals above the EBIT line.
The signs were there.
The announcement points out positive pro forma EBITDA. This is really a nonsense measurement IMHO although it's popular (for obvious reasons). Depreciation is real.
Will have the annuals' analysis up a few days after they publish the financial statements.
In the mean time here's Feb's very basic interim analysis:
https://recastinvestor.substack.com/...aland/comments
$60m to be raised ..... 2.85 for 1 at 15 cents
Says TERP is 33 cents (last close 86 cents)
Seems pretty desperate stuff
Maybe a punting opportunity coming up
First decent bid at 50c.
https://c.tenor.com/cDcNocnnUD0AAAAM/stocks-crash.gif
And yet Craig's kept picking it!
They actually lost around $114.5 mn for the year and then mitigated this with a $41.3 mn unrealised 'fair value gain' on biological assets (fish).
Subtract off a tax credit (might never be used) of $14.4 mn and we're looking at a loss of $128.9 mn.
A total blood bath in other words.
Another forward contract early closure to bail out the operating cash flow. How does that work I wonder? Seems to come to the rescue every reporting period.
Jarden's are underwriting. Can't find any information on their fee even in the offer document. I bet it's huge.
Rights at a record discount to heads at 15 cents.
Receivership might be a better option.
60 cents this morning. Dog tucker.
A wise man said to me “ never invest in any company that makes most of its money from food.”You only need to look at my food bag, Sanford, A2 milk, New Zealand king salmon and see that advice was good.
I have never been a shareholder in New Zealand king salmon but after a brief look at the capital raise announcement I feel sorry for all the existing shareholders. They are being asked to stump up money when the issues of fish mortality might be fixed “if” approval for the new farm is given. If they dont get approval and nz continues to have high water temperatures which is predicted to happen, then you might be throwing more money in for nothing. Will there be a future capital raise if they are successful in the new farm consent. I also noticed that a number of the existing farms consents expire in the next two years.
The reason this is so discounted in my opinion is because the main shareholders set the price for the risk involved. Good luck to shareholders. I think you are going to need it….
I take it that "wise man" wasn't anyone from the Talley family, that invest near only in food and have done bloody well from it. My best performer over the last 2 years on the NZ market has been meat company SFF, with SP up 260% and fully imputed dividends over 20% combined in the last 2 years.
I've also made very good money in ATM & SAN but been out of both for some years now. Never been in NZK.
Not sure how "wise" that guy was !
I think it is like any company - well-managed, strong companies with a sustainable advantage in the food sector are profitable just like in other sectors.
People gotta eat!! :)
Hmm - while the companies you mentioned are currently all in the doldrums, I don't think that their main problem is that they make most of their money from food.
If we start with NZK - their main problem is that they ignored climate change. They could be huge money spinners if they would not grow their fish in too warm waters. A good company would know which parameters are relevant for their production - and even a brain dead dinosaur would know by now what impact global warming will have on anyway too warm waters.
Looking at the others - A2M had this one trick pony problem, MFB was listet as a dud with little growth perspective and lots of debts (as many non food companies as well: e.g. Feltex, Orion Health, MPG), and Sanford made just many hard to understand business decisions related to lack of managerial oversight and lack of due diligence.
Food producing was not the problem for any of the companies your provided ... and hey, I can think about many very profitable food producing companies: (in no particular order): McDonalds, RBD, Coca Cola, Nestle, Danone, JBS (well, profitable at times), and there are so many more. Probably all of us can think about very successful food producers (not necessary listed).
The real problem for NZK, A2M and Sanford is lack of competence to run a successful business - most likely unsuitable management and a board sleeping for too long (bad governance) ... and these things are not exclusive to food producing companies. And MFB - probably just sold under the wrong pretences.
BTW: before I forget it - currently holding Seeka and quite happy with my investment :) - yes, they make their money with food (mainly Kiwifruit and Avocados) as well.
Mr Peter, it appears you've spent more time writing this comment than reading up on the company.
Here's a couple of places to get you started:
https://www.mpi.govt.nz/dmsdocument/...borough-Sounds
https://www.kingsalmon.co.nz/open-ocean-blue-endeavour/
You can even read a couple of slides on the topic in the latest investor presentation on what they're doing in their current locations to mitigate mortality. It would almost appear that they're well aware of the issue. Go figure.
The decision on where they farm sits with government (not NZK) ;)
I guess that the FISH were a bit slow in telling NZK Directors that they were feeling unwell in large numbers
and the paid minders didn't think they were paid to notice a great number of their captives swimming upside down ;)
Perhaps NZK may have to look at holding smarter more communicative Fish captive ? ;)
Must explain why no-one knew that the enclosures were looking bare of much of the kicking swimmers :)
Probably a fairly different story when the paid compliment of minders & mostly absent Directors fronted up
for their prescribed wage & directing the show payouts ;)
Could be interesting when the stakeholders decide to become mostly absent when the empty
contributions tin is passed around to maybe fund another repeat of the same saga or maybe not ;)
Hard to know where this company will end up, so much depends on the success of the Blue Endeavour project. Couldn't find any projections for it but had a good look at the historical financials up to 31.1.22:
https://recastinvestor.substack.com/...-salmon-nzknzx
Comments and suggestions gratefully received. Cheers.
Great article, thanks.
So, if the Govt declines Blue Endeavour, the company is pretty much finished right? That has to mean it has a pretty good chance of approval then? Would be a bad look to kill the company unless they have some pretty darn good reasons not to grant approval.
I had some of the double maple smoked regal salmon for dinner tonight. Doing my bit to keep this company afloat..
Thanks.
They still have a reasonable amount of equity as at balance date 2 1/2 months ago. But the debt is current.
Also I wonder if they are raising enough for the Blue Endeavour project. Perhaps they can borrow more.
I don't know if the company would be finished if approval is not granted. Profitability seems a tad low :-).
Closed at 46 today.
looks like the sharesis folks getting in on the action.... could be onto something
Brilliant idea, splice a few chicken genes on and have the salmon running around in a paddock:t_up:
First time I've heard the term. A quick Google check and it is indeed used in the salmon industry.
Towards the bottom of the page of this link:
https://salmonbusiness.com/high-harv...-heavy-salmon/
I've seen it written as farmgate in Europe and farm-gate in the US.
So yes it would be a good analysis point if it's available.
There are some quite good comments in today's Chris Lee Newsletter on NZK:
https://www.chrislee.co.nz/taking-stock
These comments are of a more general nature and summarise things quite well I thought.
Hope he doesn't mind me linking to it here.
Or just a bit of vegan salmon...... ‘World’s First’ Vegan Salmon Fillet Set To Take On The $586 Billion Seafood Industry - Plant Based News
ive decided to have a punt on this as a recovery proposition and as a longer term hold for me , been buying a few all week
as an aside heres a update out today by a salmon farmer in aus
record sales and high prices
https://cdn-api.markitdigital.com/ap...df02a206a39ff4
and i think tomorrow last day to qualify for the rights issue
Good luck on that Bull. I think Clean seas only do Kingfish though.
Very interesting article, thanks.
You might do well if price stays around terp of $.33
Based on yesterdays close of $.47 say purchase of 10,000 shares would give you average cost of $.23 and give you 38500 shares. If you applied for full xtra entitlement of rights not taken up at $.15 you would have 67000 shares with average cost of $.20
It seems to be hinging on blue endeavour. If directors and main shareholder are prepared to stump up odds must be good…..you would think. A lot of luck needed with this one.
im probably more in for a recovery trade much like chris lee report was suggesting than a short term on this one but i see your point and it makes sense so could work for both short and long term trades
and it is a risk that the recovery doesnt eventuate ... but thats the rub to making big bucks
I dont see a way out of this unless Blue Endeavour gets the green light. Otherwise water will get warmer and more fish will die.
Agree. Water (in the sounds) will get warmer and more fish will die. Blue Endavour is the only straw they still can try to grasp, and they only need environmental approval (not a given), funding (not included in this CR) and obviously they will need to overcome a lot of yet unknown technical problems (remember - they are the first to try this on high sea). But hey, how hard can it be? And sure, IF they do succeed the rewards might be ok ...
Big dump. Officially my worst investment (houses, shares, crypto, etc) ever now!
https://media.giphy.com/media/yUI3a7RwLhOFy/giphy.gif