Should the Miami-area salmon farmer succeed, its earnings potential is good. But, DNB Markets doesn’t seem to see an especially highly probability of that happening.
“Should they succeed, they’ll produce about 90,000 tonnes of salmon by 2026 and generate an EBITDA of USD 535 million. Based on a 20-percent chance of success, we’ll start covering the stock with a “buy” recommendation and price target of NOK 68 (USD 8.70).”
That’s how DNB Markets two analysts, Alexander Aukner and Tone Bjornstad Hanstad, introduced their first analysis of the company pioneering land-based salmon-farming on large scale. Atlantic Sapphire is already listed on the so-called, OTC List, and is therefore freely tradeable.
Scale
In analysis released at the weekend, the analyst duo said the salmon farmer with the ticker ATLAS will start earning money as early as next year (this doubtlessly based on the harvest of subsidiary and pilot project, Langsand Laks in Denmark). The Big Money, however, will be generated in Florida, once the company’s enormous land-based installation comes on-line.
“If successful, we calculate a fair value of NOK 339 per share (USD 43.39 per share) on a fully diluted basis, to which we apply a 20 percent probability of success, hence our NOK 68 target price. In our view this is not a 2026 case, but a 2020 case. Harvest from the US-Phase 1 in 2020 would prove the concept, which we believe would lead the market to quickly discount the following phases, hence the bulk of the share price appreciation should materialise between now and first US harvest in third-quarter 2020,” the analysis for investors said.
Risk
An investment in Atlantic Sapphire carries with it significant risk. DNB Markets makes no effort to obscure this: “In its Danish test facility, Langsand Laks, it has gradually acquired knowledge and made the ‘necessary mistakes’ on a smaller scale.
“The company has dealt with bacterial disease, early maturation, off-flavour and intoxication, but is now at a point where it is confident that the process is biologically possible. The next phase is getting to the scale needed in order to prove it is economically viable.”
The Atlantic Sapphire last traded at NOK 34 (USD 4.35). Should DNBs price target be reached, it’ll imply a doubling of its share price today.
Binary
In its analysis, DNB Markets operates with a salmon price prerequisite of (USD 10) per kilogram for 2021-2016. This is based on an FOB, fish-farming price in Norway of USD 7.3; of USD 1.8 in transport (to the US) and of USD 0.9 in product premium (made in the USA).
Many investors SalmonBusiness has spoken to see the risk of investing in Atlantic Sapphire as binary: either they succeed or they fail. DNB does not share this view.
“We do not see the risk as binary, hence we are comfortable with our 20-percent probability of success,” the duo’s analysis states.
“Based on results from the Danish pilot plant (which has shown production yield-in line with and above the US budget) and other projects, we believe the risk is not whether Atlantic Sapphire will produce 95,000 t or null tonnes in the US, but if it can manage 9,500 t or 5,000 t.”
