SpareBank1 begin Scottish Salmon Co. watch with “buy” rating

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Norway-based salmon analysts at SpareBank1, keen watchers of Marine Harvest and its peers, have begun their coverage of The Scottish Salmon Company with a buy recommendation on the company’s stock and 12-kroner price target.

“The SSC share is under-analysed and forgotten by the market and has underperformed the sector significantly over the past few months,” SpareBank1 salmon analyst, Tore Tonseth, said in an investor note.

Tonseth said that at the current share price, the company was trading at a “40 to 50 percent discount to sector average and delivering an attractive dividend yield in the four-to-five-percent range. With increased volumes and improved cost development, both dividends and earnings should grow strongly in the coming years,” he wrote.

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Scottish Salmon Co.’s CEO, Craig Anderson, had earlier confirmed the company was reorganizing sites, with some smaller sites to disappear and larger ones, including larger sites with higher biomass counts than today’s sites, would become more numerous. The company is also investing in new infrastructure to replace old, and analysts see this as being an augur of more growth and lower costs.

With the share up “only 15-percent”, SSC lags the rest of the sector “significantly”, Tonseth said, a nod to the historic growth of over 35 percent for the salmon-farming segment in January. “SSC should have outperformed the sector.”

“We are currently positioned at GBP 33.9 million in EBIT for 2018, above consensus currently at GBP 28.1million, but not many analysts are following SSC and the estimates could be outdated,” he said, adding that “2018 will be positively affected (about GBP 8 million) by a change in accounting method, but a strengthening of the GBP versus the NOK and higher feed costs works in the opposite direction.”

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SpareBank1 sees SSB volumes at 26,000 tonnes, or slightly lower than the 26,500 t guidance, if up over 2017’s 25,300 t in 2017.

“Over the next five years SCC plan to grow its volumes to 33,000 t, up 30 percent from 2017, which we find realistic given the low utilisation of existing locations and volume potential in improved biology.”