Record-high earnings despite high cost

The salmon spot prices in Q1 ended at NOK 47 per kg, which is NOK 11 higher y/y. As the demand for salmon is strong, we expect markets will absorb supply growth in the coming months. Hence, we keep our NOK 96 target price and reiterate our Strong Buy rating, says Nordea Markets in its weekly report.

Earnings improvement hindered by negative cost development

The salmon prices in Norway ended NOK 11 higher than in Q1 2013, while EBIT improvement was estimated at NOK 7.5, implying a cost inflation of NOK 3.5 per kg y/y. Higher costs related to biological issues are the main reason for this negative development.

Strong demand expected to sustain high prices

The high price level has resulted in lower imports to price-sensitive markets like Russia and France, while UK and Germany seem to have strong demand momentum. Higher harvesting in Norway from last part of Q2 is expected to lower prices and stimulate demand from France and Russia. We expect the low supply growth and firm demand momentum will sustain the high prices throughout 2014-16. This is also reflected in our firm dividend forecast for this period (9-10% dividend yield).

Share price is substantially undervalued

We view the share as undervalued and attractive. Based on our current estimates, we keep our NOK 96 target price and reiterate our Strong Buy recommendation. We view the share as a sector top pick, providing an upside of more than 43% compared to the current share price.