New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

New Zealand King Salmon / Equity Bottom-Up

<h2>New Zealand King Salmon<br>FY20 Preview&nbsp;—&nbsp;Foodservice&nbsp;Challenging</h2>
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<p><strong>OUTPERFORM</strong></p>
<p>New&nbsp;Zealand&nbsp;King Salmon (NZK) will report FY20 earnings on Thursday, 27 August; earnings are likely to be suppressed&nbsp;following the unprecedented collapse of the food service channel, with questions around channel diversification and current sales outlook of particular interest to investors.&nbsp;NZK&nbsp;has guided to FY20 Operating&nbsp;EBITDA&nbsp;of NZ$25.0m to NZ$28.5m (Forsyth&nbsp;Barr NZ$26.0m), effectively flat on the prior year despite lower sales volume with improved fish performance providing a significant earnings offset.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/155/058/original/image_17230144021598400647292.png?1598400654" class="editor-image img-responsive" data-smartkarma-image-id="155058"></figure>
<h3>Key issues to consider at NZK's FY20 result</h3>
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<li><strong>Channel diversification efforts, margin likely impacted</strong> — NZK typically generates c. 75% of its sales through the foodservice channel, which has been under pressure amid COVID-19 lockdowns. A concerted effort to pivot volume through retail formats is underway, with questions around volume shifted and margin achieved. Although we expect foodservice to eventually recover, this is likely to be an overhang for an extended period, and ability to sell product in retail will likely be a key earnings driver in FY21.</li>
<li><strong>Elevated inventory with fish in the freezer?</strong> — With the reduction in foodservice demand, NZK guided to significantly lower (c. -30%) FY20 sales volume (6,300MT–6,400MT). NZK has some ability to delay harvest, although we suspect it may report an elevated FY20 inventory level as it froze product.</li>
<li><strong>Fish performance</strong> — Warmer waters have created challenges for NZK in recent periods, however, more benign temperatures and changes to the operating model have delivered an improved result. One area of focus will be identifying the net benefits of those operating changes.</li>
<li><strong>Open ocean consent progress</strong> — In 2019 NZK applied for its first open ocean site, Blue Endeavour, which would eventually allow for ~8,000MT of production over an 18 month cycle. Open ocean farming is the single largest opportunity for aquaculture companies, in our opinion, with an expected consent timing update of interest.</li>
</ul>
<p><strong>Conference call details</strong>&nbsp;<br>NZK will host an FY20 result conference call at 10am NZST on 27 August 2020. Dial in details: New Zealand 0800 122 136, Conference ID 10008645. Participants can pre-register here <a href="https://s1.c-conf.com/diamondpass/10008645-invite.html." target="_blank" rel="noopener">https://s1.c-conf.com/diamondpass/10008645-invite.html.</a>&nbsp;<br><br></p>
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<div><strong>Guy Hooper</strong></div>
<div><a href="mailto:guy.hooper@forsythbarr.co.nz" target="_blank" rel="noopener">guy.hooper@forsythbarr.co.nz</a></div>
<div>+64 4 495 5255</div>
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New Zealand King Salmon FY20 Preview&nbsp;—&nbsp;Foodservice&nbsp;Challenging

OUTPERFORM
New&nbsp;Zealand&nbsp;King Salmon (NZK) will report FY20 earnings on Thursday, 27 August; earnings are likely to be suppressed&nbsp;following the unprecedented collapse of the food service channel, with questions around channel diversification and current sales outlook of particular interest to investors.&nbsp;NZK&nbsp;has guided to FY20 Operating&nbsp;EBITDA&nbsp;of NZ$25.0m to NZ$28.5m (Forsyth&nbsp;Barr NZ$26.0m), effectively flat on the prior year despite lower sales volume with improved fish performance providing a significant earnings offset.

Key issues to consider at NZK's FY20 result

Channel diversification efforts, margin likely impacted — NZK typically generates c. 75% of its sales through the foodservice channel, which has been under pressure amid COVID-19 lockdowns. A concerted effort to pivot volume through retail formats is underway, with questions around volume shifted and margin achieved. Although we expect foodservice to eventually recover, this is likely to be an overhang for an extended period, and ability to sell product in retail will likely be a key earnings driver in FY21.
Elevated inventory with fish in the freezer? — With the reduction in foodservice demand, NZK guided to significantly lower (c. -30%) FY20 sales volume (6,300MT–6,400MT). NZK has some ability to delay harvest, although we suspect it may report an elevated FY20 inventory level as it froze product.
Fish performance — Warmer waters have created challenges for NZK in recent periods, however, more benign temperatures and changes to the operating model have delivered an improved result. One area of focus will be identifying the net benefits of those operating changes.
Open ocean consent progress — In 2019 NZK applied for its first open ocean site, Blue Endeavour, which would eventually allow for ~8,000MT of production over an 18 month cycle. Open ocean farming is the single largest opportunity for aquaculture companies, in our opinion, with an expected consent timing update of interest.

Conference call details&nbsp; NZK will host an FY20 result conference call at 10am NZST on 27 August 2020. Dial in details: New Zealand 0800 122 136, Conference ID 10008645. Participants can pre-register here https://s1.c-conf.com/diamondpass/10008645-invite.html.&nbsp;  



Guy Hooper
guy.hooper@forsythbarr.co.nz
+64 4 495 5255




New Zealand King Salmon: FY20 Preview — Foodservice Challenging