Australia | Feb 28 2008
By Chris Shaw
Salmon farmer Tassal Group ((TGR)) fell a bit short in terms of its earnings result for the half year and while the shares were sold down yesterday on the profit news and an unofficial downgrade to guidance brokers remain positive on the stock, GSJB Were noting a good deal of work has been done to improve the company’s longer-term outlook.
Some examples of this include the recently announced strategic relationship with private salmon supplier Petuna, while the broker also notes there is some momentum in terms of lowering overall group costs and growing demand for its product generally. While cutting its forecasts post the result by 13% this year and 10% in FY09 and expecting others in the market to do the same it notes the stock is now at a discount to the Small Industrials of around 11%, this despite offering solid earnings growth over the next few years.
In earnings per share (EPS) terms GSJB Were is now forecasting 16.7c for FY08 and 22c in FY09, which compares to Merrill Lynch at 17c this year and 24c in FY09 after cuts of 8-10% and JP Morgan at 17.6c and 21.8c respectively. Pre-result median forecasts according to Thomson One Analytics were 19c and 25c.
Merrill Lynch has a similar view to Weres and sees solid earnings growth in coming years as enough to offset the disappointment of the latest result falling short of expectations, the broker arguing the post result share price reaction was overdone given its blended valuation of $4.35 is around 60% above the share price.
The broker also argues the recent capital raising will allow the company to bring forward its planned growth options, while the lower gearing means a reduction in investment risk.
Another area of upside longer-term according to JP Morgan comes via the recent acquisition of competitor Superior Gold, as the broker expects the deal will mean more shelf space for the company and therefore more pricing power. It also offers upside in terms of potential organic growth as the broker notes seafood sales from supermarkets in Australia remain at very low levels compared to other markets such as Europe.
Following the result the broker has not adjusted its estimates, rating or price target, which stands at $3.95. This is broadly in line with the average price target according to the FNArena database of $3.97, which is down from $4.15 prior to the result and compares to the median price target according to Thomson One Analytics of $4.30.
Ratings have not been adjusted as the database still shows three Buy ratings and two Holds, though ABN Amro is yet to update its view post the profit result.
Shares in Tassal today are higher and as at 1.30pm were up 12c or 4% at $2.83.
