Financial valuation of Norway Royal Salmon

Abstract

Initiating coverage Share price: NOK 131 Recommendation: Buy Target price: 170 Key facts Number of shares (millions) 43.57 Market cap NOK (millions) 5708 Share price NOK 131 Ticker NRS Stock exchange Oslo Børs Norway Royal Salmon Attractive investment case We see a 30% upside from current share price to our target price. Until 2021, we see revenues growing by 22%, whilst operational costs growing by 28.5%. By our estimates, we see group EBIT peaking in 2018, before coming down due to lower prices and costs outpacing revenue growth. Our target price of 170 reflects a value per share of 167 NOK for the current operations, and an additional 3 NOK per share for the development license project. NRS faces three main risks. Price risk, cost risk, and disease and escape risk. Prices are likely to continue to remain strong due to restricted supply growth for the foreseeable future. Costs have climbed at worrying levels for the past years. We believe this will continue, but at a slower pace in the coming years. As for disease and escapes, NRS is not immune, but this risk generally is not as bad as the media makes it out to be. For instance only a total of 24 salmon (!) have escaped so far in 2017 according to the Directorate of Fisheries. We caution investors not to underestimate the effect of costs rising at a rapid rate the same way oil and gas did recently. A drop in prices will leave a lot of farmers vulnerable, including NRS. Millions of NOK 2016 2017E 2018E 2019E 2020E 2021E Operational revenue 4 224 4 632 4 876 4 966 5 068 5 172 Total operating expenses -3 584 -3 908 -4 119 -4 272 -4 447 -4 606 Operational EBIT 641 725 757 695 621 566 Income from associated companie s 72 80 83 76 68 62 Group EBIT 712 804 840 771 689 629