Strong buy

The Q1 report released this morning shows EBIT of NOK 550m (consensus NOK 538m). The main reason for this positive deviation is better than expected margin development mainly driven by a favourable cost development. Volumes were 2k tonnes lower than expected in the quarter, still they are guiding up full year harvesting by 6k tonnes. Harvesting in 2H is hence expected to be substantially higher than in 2013. Not easy to find dark spots in the report, the company seems to have broken some codes with regards to lowering costs in Sjøtroll and Midnor and this is the key to both improved profitability and also positive volume guidance. We expect the share to open a positive 1-3% in the market today following this report.

Cost cut that counts paving way for improved EBIT margins

The company is delivering 2% better EBIT than expected despite lower volumes, hence margins per kilo has improved substantially more than expected. The key to this positive deviation is better cost control in Midnor owing to more efficient operations (allowing waiting pens outside the harvesting plants, eliminating the costly well boat solution). In Sjøtroll, they have eliminated a huge amoeba cost (at least for now, they say they are optimistic with regards to 2H operations also).

Volume guidance upped by 3-4%

These operational improvements along with a good winter in terms of on-growing are also paving way for a 3-4% higher 2014 volume guidance. Even though prices are coming down now, we still expect high average prices also for the rest of 2014 and with lower cost base, the EBIT margins are being more robust to price changes. A solid 42% contract share is also contributing to lower the price volatility and might be a positive contributor now as average prices are dropping below NOK 40 per kilo. All in all a positive report and we should expect a positive market reaction from opening today.