Austevoll Seafood ASA (ASTVF, Financial) (OSL:AUSS, Financial) is a Norwegian fishing company that is completely vertically integrated. Its major operations are in Norway and South America. The company has been doing very well with the high price of salmon. Profit numbers are off the chart, but you cannot find much news on the company here in the U.S.
The stock trades for 85 Norwegian krone ($10.68), there are 202.72 million shares and the market cap is 17.231 billion krone ($2.154 billion). It takes eight krone to buy one dollar. According to the Financial Times, earnings per share are 9.78 krone and the price-earnings (P/E) ratio is 8.7. The dividend is 2.5 krone and the dividend yield is 2.94%. So far the stock seems cheap.
Gross margins are 48.49%, net margins are 20.22% and operating margins are 24.09%. That is ridiculously great. The return on equity is 21.98% and the return on investment is 22.3%. Free cash flow was 2.1 billion krone last year and the free cash flow yield is 12.2%. That is an analyst’s dream.
As of the second quarter, there was 3 billion krone in cash and 4 billion krone in accounts receivables. The liability side showed 8.9 billion krone in debt and 1.28 billion krone in payables. In the first half of 2017, revenues of 11 billion krone have blown past 2016’s 9 billion krone in revenue.
The company's activities are classified according to the following operating segments: Lerøy Seafood Group ASA (Europe), Austral Group S.A.A (Peru), Foodcorp Chile S.A (Chile), Br. Birkeland AS (Norway) and a joint venture named Pelagia AS (Europe). Pelagic fish, according to the great Wikipedia, “live in the pelagic zone of ocean or lake waters – being neither close to the bottom nor near the shore.” Leroy has the lion’s share of revenues and profits of the company.
Austevoll catches and raises fish in Europe and South America. It also processes and sells the finished product. The company is vertically integrated, it is soup to nuts in fish. The end result is frozen fish, fish oil and fish feed. The company holds 6.78% of the anchoveta quota in Central and Northern Peru and 4% in Southern Peru. Austeval also holds 9% of the quota for horse mackeral. Its Leroy division harvests salmon, trout, whitefish, cod and other fish.
The blowout profitability numbers are due to a shortage of salmon and trout in the Atlantic. This has increased prices. Salmon costs $6.88 for 2.2 pounds (one kilo). That sounds pretty high since this is a wholesale number. Prices hit $10 for a kilo earlier this year. By the time you and I buy frozen salmon at Trader Joe’s, it is going to be a heck of a lot more. This industry group stated Norwegian salmon production was down 5% to 6% in 2016, down in the first half of 2017, up 5% to 8% in the second half of 2017 and up 8% in 2018. We shall see.
As for anchovies in Peru, the harvest has been off due to the El Nino effect. Its pelagic operations brought in 55 million krone versus 534 million krone in the second quarter of last year.
Norway is the largest producer of salmon in the world and has not increased its quota since 2012. The weak krone has also helped the company as it is selling a commodity (and a weak currency increases profits).
Laco A/S is the largest shareholder with a controlling 55.55%. The Mogster family controls Laco and has several members who sit on the board of Austevall. Laco is also involved in shipping and other businesses. The financial filings are extremely clean and easy to read. They are in Norwegian and English.
One Norwegian fishery is working with Alibaba (BABA) to sell salmon via the internet. It seems smart to partner with a local company in China. Trade relations between China and Norway were normalized in December, ending a six-year freeze that began after the Norwegian Nobel Committee awarded the Peace Prize to a Chinese dissident. It is interesting China put an embargo on Norwegian goods.
As far as I can tell, the stock has never been mentioned in the Wall Street Journal, Barron’s or Seeking Alpha. I am sure someone follows Austevoll in the U.S., but I cannot find anything. I will not buy shares at this time because I might be buying at the top of the commodity boom for salmon. I am going to hold off and watch the stock. I do like the profitability numbers and it appears fishing is highly regulated.
Disclosure: We do not own shares.
