Bakkafrost buys cheap Scottish salmon, say investment banks

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Accretive transaction with significant opportunities for synergies, say investment banks Pareto and SpareBank1 Markets about SSC acquisition.

Bakkafrost shareholders shrugged their shoulders with stocks barely rising on the Oslo stock exchange on Thursday morning, the first trading day after the GBP 517 million acquisition of The Scottish Salmon Company.

Synergies
However, the investment banks that follow the salmon shares on the stock exchange are positive in their analysis.

“The price implies a P/E 19e/20e of 13x/11x, while BAKKA trades at 21x/17x. The acquisition will be financed by issuing 15% new BAKKA shares (NOK 3.5bn assuming a 5% discount to today’s close), a direct share issue of 5% (NOK 1.2bn) to Northern Link and new debt for the potential additional payments,” wrote Pareto analyst Carl-Emil Kjølås-Johannessen in a financial bulletin.

“If we assume that Bakkafrost buys 100 per cent of SSC and we use our 2020 estimates for SSC, our 20th EPS (earnings per share – editorial note) in Bakkafrost will increase by around 16 per cent before synergies. In the longer term, we see potential synergies lower feed costs and improved operations,” he added.

Accretive
Kjølås-Johannessen receives support from analysis competitor Sparebank1 Markets’ Tore A. Tønseth.

“Accretive transaction for Bakkafrost (no surprise). EV/kg (farming) 170x vs. 437x 2019. On P/E its 12.6x 2019 vs. 20.6x,” he wrote in an email to his customers.

“We also believe Bakkafrost will be able to stabilise and improve The Scottish Salmon Company’s (SSC) operational performance further, so you could argue that SSCs value in Bakkafrost is higher than SSC on stand alone basis,” added Tønseth.

“This brings volatility and risk to BAKKA. Not longer a pure-play Faroe Island. Could affect pricing of the whole company long term,” he added.

At the same time, he foresees openings for other salmon stocks.

“This is a positive read-across for Grieg Seafood. SSC pricing on GSF Shetland indicates NOK 1bn (EUR 100 million) upside or NOK 9/shr,” wrote Tønseth.