Offshore fish farming rigs: “The potential is enormous”

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Investment banks disagree on how much SalMar’s commitment to ocean rigs is worth.

SalMar’s share price has gone up like a shot. In the last month alone, the company’s market value has increased by 15 per-cent. A key driver behind the upturn is the focus on salmon farming in the open ocean.

The bright yellow ocean rig “Ocean Farm 1” has now harvested two whole generations of fish. The quality of the fish has been impeccable and has made the SalMar board even more confident that there is a great future in the ocean, for both the company and the salmon industry in general.

In January, the Norwegian Directorate of Fisheries received an application from SalMar Ocean for a site in the Norwegian Sea, the first time anyone has applied to farm salmon in the open ocean. The plan is to place the new rig, “Smart Fish Farm”, there.

Large values
“Ocean Farm 1” and “Smart Fish Farm” are expected to be followed by more projects. SalMar last week announced a series production of ocean rigs, initially five to ten units.

The rig initiative is pumping up the values in Gustav Witzøe’s money binge. For investment banks, the question is how great the values inherent actually are in SalMar’s first-mover advantage in open ocean fish farming.

Carnegie analyst Lars Konrad Johnsen has tried to quantify these values.

“SalMar Ocean can be as big as SalMar wants, and as big as the market can handle, given the volume growth that will then come. The potential is enormous and the offshore investment could be worth much more than the NOK 9 billion (EUR 900 million .ed) we have made,” Johnsen recently told the business newspaper Finansavisen.

Uncertainty
DNB Markets analyst Alexander Aukner was more measured. He recently downgraded SalMar’s recommendation from BUY to HOLD, while increasing the price target from NOK 570 to NOK 590. In the analysis, Aukner pointed out that SalMar looks fair priced, and the price target implies a P/E multiple of 25.1 times the estimates in 2021 and 19.9 times next year’s estimate.

“SalMar delivered a smooth fourth quarter operationally. Either way, the real story is offshore fish farming, which is still a matter of uncertainty. We believe the market is emphasising the potential too much, rather than SalMar Ocean’s value today,” Aukner wrote in an analysis report.

Aukner valued the offshore investment at EUR 300 million, excluding “Ocean Farm 1”. But added that the value could potentially be much higher in the future, he told Finansavisen.