Land-based salmon farmer Atlantic Sapphire saw its market capitalization plummet around 14.5 percent to $949.7 million (€793.5 million) on Thursday morning following the release of its operational update for the first quarter, and amid concerns that a further $50 million (€41.7 million) to $100 million (€83.4 million) in fresh capital may be needed to finance Phase 2 of development at its Florida facility.

A 16 percent plunge in the company's share price wiped more than $150 million (€125 million) off its market cap and came as analysts described the quarter as “very disappointing” and “weaker than expected” in the wake of a tumultuous three months for the company.

During the quarter Atlantic Sapphire lost 500 metric tons of fish at its Miami land-based salmon farm, which it blamed on a "weakness" in the recirculating aquaculture system (RAS), and on April 13 three people were hospitalized after being rescued from a large fish tank at the same facility.

In total, the company harvested 421 metric tons from its Miami facilities in the three months to March 31, with a further 300 metric tons from its smaller Danish facility.

Net revenue was $6.80 (€5.70) per kilogram for its US farmed fish and DKK 37 (€5/$6) per kilogram for fish from Denmark, with its higher-end 3 kilogram+ salmon from its US farm achieving a more impressive $12 (€10) per kilogram.

Atlantic Sapphire's earnings before interest, tax, depreciation and amortization (EBITDA) for the full 2020 financial year stood at a loss of $39.85 million (€33.2 million) with revenues of $6.27 million (€5.2 million).

Carl-Emil Kjolas Johannessen, an analyst at Pareto Securities, described the recent update on operations as “disappointing” and “somewhat weaker than expected."

In the first quarter of 2021, the company struggled in both its US and Danish facilities, with total harvest volumes of 720 metric tons, significantly below Pareto’s 1,400 metric ton estimate.

“Also, the biomass gain in the quarter has been weak,” said Johannessen.

The achieved price in the United States of $6.80 (€5.70) per kilogram was also below Pareto’s $9 (€7.50) per kilogram estimate, driven by a higher share of downgraded product.

Despite concerns, the analyst currently has a Buy recommendation, and a target price of NOK 140 (€14/$16.80).

Can lessons learned make for a better phase 2?

Atlantic Sapphire has initiated several measures to improve operations going forward, and said construction of Phase 2 is going according to plan, with full construction to start in the second quarter.

“We expect to lower 2021 estimates further but still expect more limited changes longer term,” said Johannessen.

The final CAPEX plan will be presented later in the second quarter. “We currently expect that Phase 2 will be funded with debt, with $32 million (€26.7 million) already committed and $98 million (€81.7 million) uncommitted,” said Johannessen.

The company also has an additional $45 million (€37.5 million) in debt capacity.

“We would expect that some more capital is required to fund the expansion of around $50 million (€41.7 million)," said Johannessen.

'Missing on all parameters'

The 2020 annual result is also somewhat weaker than Pareto’s expectations, with the net loss of $55 million (€45.9 million) higher than the analyst’s $48 million (€40 million) estimate.

Nils Thommesen, an analyst at Fearnley Securities, said Atlantic Sapphire's first quarter update was “missing on all parameters.”

Again, harvest volumes came in below the analyst’s estimates, with volumes in Denmark and the United States 38 percent and 64 percent lower, respectively.

“Overall, a very disappointing update from Atlantic Sapphire, and we expect the share to trade down tomorrow [Thursday], said Thommesen.

“On a first-take basis, we now identify an equity need of $50 million (€41.7 million) to $100 million (€83.4 million) for the completion of Phase 2 due to higher spend in 2020 and less cash flow from operations in 2021 from lower volumes,” he added.

Fearnley Securities is placing its recommendation for Atlantic Sapphire under review, but it is currently a Buy with a target price of NOK 162 (€16.2/$19.4).

'Even weaker' than expected

Alexander Aukner, an analyst at DNB Markets, said in an update that while first quarter operations were expected to be weak, they were “even weaker” than predicted.

Nevertheless, DNB is reiterating its Buy recommendation and NOK 170 (€17/$20.30) target price.

“We are again reminded that RAS systems seem a long way from turnkey factories,” said Aukner.

“We expect the market to be muted towards the stock until a plan for Phase 2 is presented, as this will offer more visibility on future funding needs.”

Despite the poor first quarter results, moving design in-house could raise the entry barriers for potential competition, added Aukner.

“After several negative start-up events, we expect smoother operations going forward.”

At the time of publishing, the company's share price was NOK 95.80 (€9.50/$11.40) down 16.8 percent from the previous day’s close of NOK 115.20 (€11.50/$13.70).