NOK 60/kg predicted

The Nordea analyst has downgraded his previous predictions by NOK 1/kg due to potential risks posed by: “1) a supply turnaround in H2; 2) dwindling demand due to high prices; 3) currency headwinds for the first time since 2012; and 4) a risk of negative estimate revisions, as our 2018 estimates are 10% below consensus.”

In terms of performance by company, he is backing the Faroese producer Bakkafrost to be top of the pile.

“We highlight Bakkafrost as our top pick in the sector, as we expect a historically high price premium on large-sized fish, of which it has the highest share,” he argues.

He points out that full-year future contracts for the next year are 56% higher than a year ago (EUR 7.5 versus EUR 4.8 per kilo). However, he warns that “the extreme prices seen over the past 12 months combined with substantially higher contract prices from Q1 2017 will have an accelerating negative effect on demand.”

“Harvesting in Norway and Chile was 150,000 tonnes (8%) below forecasts at the start of 2016 and we expect negative y/y supply growth in H1 2017 as well. One main risk in 2017 is buyers becoming less willing to pay such high prices for salmon. If this plays out alongside a 13% y/y supply increase in H2, there is a risk we may see a major negative price correction from Q3 2017. Due to sustained biological issues and early harvesting in Norway, we expect to see an accelerating lack of large-sized fish and hence an increasing price gap. This will favour producers with large-sized fish,” he explains.

Recommendations

In investment terms Giskeødegård points to a “mixed bag”.

“In 2017-18, we see downside risk to salmon prices. We downgrade Marine Harvest, Lerøy and Norway Royal Salmon to Sell (Hold) and maintain our Sell recommendation on Salmar. On the positive side, we upgrade Bakkafrost to Buy (Hold) and keep our Buy recommendation on Grieg Seafood. For Austevoll Seafood, we maintain our Hold recommendation,” he observes.