Things are looking up for the global land-based salmon farming sector, especially for one company, which Norwegian investment bank SpareBank 1 Markets said is now the frontrunner in the sector, vaulting ahead of Miami-based Atlantic Sapphire.
The positioning of the land-based salmon sector has improved since a new 40 percent tax on Norway's traditional netpen farming companies was proposed in September, the bank said in a new report.
Following the tax proposal, the political risk related to traditional salmon farming in Norway has increased. A side effect of the Norwegian government's tax proposal is that governments outside of Norway could emulate the move and boost taxes on their salmon farming sector, the bank said.
The tax could also lower cash flow for traditional salmon farmers in Norway, which could result in reduced innovation and negatively affect overall supply growth, it said.
New leader?
The bank follows four land-based Oslo-listed companies; Atlantic Sapphire, Salmon Evolution, Nordic Aqua Partners and Andfjord Salmon.
Out of the four, it has placed buy recommendations for Salmon Evolution, Nordic Aqua Partners and Andfjord Salmon, while it downgraded Atlantic Sapphire from hold to sell.
Atlantic Sapphire may need at least $125 million (€116 million) to complete the construction of Phase 2 of its project, the report said.
“Out of the land-based salmon farmers, Salmon Evolution is becoming the frontrunner as it has successfully completed harvesting of its initial production batch at close to four kilo average weight.”
Salmon Evolution may be the first profitable land-based salmon farmer in 2023, SpareBank 1 Markets estimated.
Nordic Aqua Partners could report earnings before interest and taxes (EBIT) of NOK 205 million (€18 million/$19 million) in 2024, and both Andfjord and Atlantic Sapphire could report positive operating EBIT results from 2026 onwards, the bank estimates.
"We are getting close to final proof of concept for several of the listed land-based salmon farmers," the report said.
"The sector is starting to prove itself so companies that are not as far ahead or have not yet secured financing may still be able to raise investments as long as it has a viable concept," SpareBank 1 Market analyst Knut-Ivar Bakken told IntraFish.
"Any individual success is beneficial for the entire sector," Bakken said.
And there is now enough evidence to show it is possible to produce salmon on land with positive EBIT/kilo margins, which will trigger other projects to be realized, he said.
However, the report also notes that while the current volatile market makes it more difficult to raise money, financing has been an issue for the land-based salmon sector for the last two years.
Companies that were able to secure financing before end of the first quarter during 2021 had an advantage compared to new projects partly as they are further ahead compared to other projects, Bakken told IntraFish.
Underlying market
Strong salmon prices are the main reason for SpareBank 1 Market's overall positive view on the salmon farming sector, including land-based producers.
Global salmon supply increased by a compound annual growth rate (CAGR) of 2.6 percent from 2015 to 2019, while prices increased by 8.4 percent in Norwegian currency and 5.9 percent in euros.
"If we look at the period 2015-2022, we forecast a global supply CAGR of 3.3 percent, while prices increased by a CAGR of 10 percent in Norwegian kroner and 8 percent in euros.
“We expect higher achieved salmon prices in 2023 compared to 2022 as a result of increasing contract prices”
