Two good years predicted for salmon producers

Although the Q2 spot price for salmon plummeted by NOK 7 from the Q1 level, during July prices have bounced back to the low NOK 40s. Overall, the market balance looks favourable, Giskeødegård asserts, as the bulk of the 2014 growth is already in the market. Looking into 2015-16, there is no new supply pressure coming up. Hence, he expects solid and high earnings to continue during the next two years.

In Q2, the spot price for salmon was reduced by a substantial increase in harvesting, both compared with Q1 and the same quarter in 2013. All in all, the spot price in Europe ended the quarter at NOK 39 which is NOK 7 lower than in Q1. For Canadian and Chilean salmon, there was also a reduction, though the price drop was more moderate. The quarter ended with the lowest price in 15 months at NOK 31.8. During July, prices have bounced back to the low NOK 40s. Giskeødegård expects prices will remain at this level up to mid-August, after which they are expected to dip again temporarily owing to seasonally higher supply pressure. 

Giskeødegård believes the price drop seen in Q2 was a temporary blip ahead of a very strong market situation. During the first weeks of July, 10% lower supply drove prices up 33%. Underlying demand is firm and the supply situation is tight (2015-16 supply growth: 2-4%). This is further supported by the fact that at the end of June the Norwegian government decided neither to change the MTB regime nor issue new licences until 2017. Hence Nordea expects prices to remain in the NOK 40s during the period 2014-16.

The share prices in the sector have advanced substantially since our last report in June. Hence, there is less upside left in the sector. We still view the sector as attractively priced with an average 2015 P/E of 6.8x and a dividend yield of 7.5% on average (Nordea estimates). Nordea’s top sector picks are still Marine Harvest (large cap), Bakkafrost (mid cap) and Norway Royal Salmon (small cap).