Nordea complains pricing of salmon sector is too low

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Kolbjørn Giskeødegård, equity analyst at the Nordic financial services group Nordea, believes his salmon forecasts have been too conservative. Now he sees Marine Harvest (buy/NOK 235) as “top pick of the sector.”

Giskeødegård has today ddistributed a new 56-page sector report. In it, he raised both the price path for salmon and stock valuation.

“For 2019, we now expect lower y/y supply growth and a further increase in salmon prices. Our new price forecast for 2019-21 is NOK 64 (up from NOK 62) per kilo. We also argue that the sector valuation is too low,” wrote the experienced equity analyst in the report.

Read also: Stock market dips, but salmon stocks performing better than rest of the market

Offensive
In light of this, Giskeødegård proposed a new approach to valuing salmon shares on Oslo Stock Exchange.

“The average P/E for 2019E on our estimates is 11x, which is fine for a cyclical sector, but given the stable average prices over a five-year period including 2019-20 forward prices, we argue that the sector should be valued more in line with a Food and Beverage peer group,” he added.

Increase
“In our SOTP valuation, we hence increase our targeted EV/ EBIT from 9x to 10x for most of the companies under our coverage. As a result, we raise our target prices by an average of 15% and highlight Marine Harvest (Buy/NOK 235) as our new top pick in the sector,” Giskeødegård concluded.