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Forsyth Barr

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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).

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

New Zealand King Salmon / Equity Bottom-Up

<h2>New Zealand King Salmon (NZK)</h2>
1H20 Result Initial Impressions — Little Surprises, FY20 Guidance Reaffirmed
New Zealand King Salmon (NZK) reported a straight forward result with little in the way of surprises, 1H20 Operating EBITDA of NZ$16.5m, behind the prior comparable period and our expectations is reflective of sales volume timing rather than any operational underperformance. NZK has signalled, sales will be weighted to 2H20E.
NZK will pay an interim dividend of 2.0cps.
Result take outs
<ul>
<li>Continued price growth: NZK continues to deliver strong weighted average pricing growth, up +6.7% to NZ$24.46/kg. This is reflective of both underlying growth and mix change benefits (export in favour of domestic).</li>
<li>Blue Endeavour: NZK’s has applied for resource consent to farm King salmon in the Cook Strait. The first stage of the application would allow for an additional 4,000mt harvest of salmon per 18 month period (in context NZK’s current harvest is ~8,000mt). A public hearing is scheduled for April/May 2020 with a decision expected this year.</li>
<li>Coronavirus: Coronavirus has had no material impact on NZK to date, with the company selling limited product into China (2% of revenue).</li>
</ul>
Outlook and our view
NZK has reaffirmed its FY20E Operating EBITDA guidance range of NZ$25.0m to NZ$28.5m (FB NZ$27m), and reiterated its medium-term volume forecasts (~8,000mt in FY21 and ~9,200mt in FY22). We see little reason to change our earnings forecasts at this stage. It is worth noting that February/March is an important time for salmon farmers, given water temperature risk (temperatures above 17oc can negatively impact fish health). To date temperatures have been behind recent years and closer to average levels. In addition, upwelling devices recently installed at all NZK farms provide a form of mitigation against temperature increases.
NZK is facing a period of subdued volume growth following an FY19 mortality event, combined with a change to its operating model. However, medium-term growth, underpinned by current consents, remains attractive in our view. Although not captures in our forecasts, we also see significant upside should NZK be successful in gaining additional water space, particularly offshore where volume can be meaningful. Reiterate OUTPERFORM.
Conference call – 10am NZT
NZK will host a 1H20 result conference call at 10am NZT.&nbsp;Dial in details: New Zealand 0800 122 360&nbsp;(Australia 1800 760 146),&nbsp;Conference ID: 10003683.
1H20 result summary (NZ$m)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.1&amp;permmsgid=msg-f:1659632825105319338&amp;th=17083342e5fb05aa&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ_C4SXdgg1zuVSorvHFjtfoSXzGGvmw6nTKJ9CQU_PTX2OEtm4BaiJBfsLWCLiVn1DJWIsNPMgf2ivT4poQGfSV11Y1UNCw9WNluYEcVhPiitwrRyQoBTt5xrk&amp;disp=emb" width="681" height="466" class="editor-image img-responsive" data-image-whitelisted=""></figure>
Source: Company reports, Forsyth Barr analysis
Guy Hooper&nbsp; Analyst, Equities
P: +64 4 495 5255 | TF: 0800 367 227&nbsp; Level 22, NTT Tower, 157 Lambton Quay, Wellington

New Zealand King Salmon (NZK)
1H20 Result Initial Impressions — Little Surprises, FY20 Guidance Reaffirmed
New Zealand King Salmon (NZK) reported a straight forward result with little in the way of surprises, 1H20 Operating EBITDA of NZ$16.5m, behind the prior comparable period and our expectations is reflective of sales volume timing rather than any operational underperformance. NZK has signalled, sales will be weighted to 2H20E.
NZK will pay an interim dividend of 2.0cps.
Result take outs

Continued price growth: NZK continues to deliver strong weighted average pricing growth, up +6.7% to NZ$24.46/kg. This is reflective of both underlying growth and mix change benefits (export in favour of domestic).
Blue Endeavour: NZK’s has applied for resource consent to farm King salmon in the Cook Strait. The first stage of the application would allow for an additional 4,000mt harvest of salmon per 18 month period (in context NZK’s current harvest is ~8,000mt). A public hearing is scheduled for April/May 2020 with a decision expected this year.
Coronavirus: Coronavirus has had no material impact on NZK to date, with the company selling limited product into China (2% of revenue).

Outlook and our view
NZK has reaffirmed its FY20E Operating EBITDA guidance range of NZ$25.0m to NZ$28.5m (FB NZ$27m), and reiterated its medium-term volume forecasts (~8,000mt in FY21 and ~9,200mt in FY22). We see little reason to change our earnings forecasts at this stage. It is worth noting that February/March is an important time for salmon farmers, given water temperature risk (temperatures above 17oc can negatively impact fish health). To date temperatures have been behind recent years and closer to average levels. In addition, upwelling devices recently installed at all NZK farms provide a form of mitigation against temperature increases.
NZK is facing a period of subdued volume growth following an FY19 mortality event, combined with a change to its operating model. However, medium-term growth, underpinned by current consents, remains attractive in our view. Although not captures in our forecasts, we also see significant upside should NZK be successful in gaining additional water space, particularly offshore where volume can be meaningful. Reiterate OUTPERFORM.
Conference call – 10am NZT
NZK will host a 1H20 result conference call at 10am NZT.&nbsp;Dial in details: New Zealand 0800 122 360&nbsp;(Australia 1800 760 146),&nbsp;Conference ID: 10003683.
1H20 result summary (NZ$m)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;

Source: Company reports, Forsyth Barr analysis
Guy Hooper&nbsp; Analyst, Equities
P: +64 4 495 5255 | TF: 0800 367 227&nbsp; Level 22, NTT Tower, 157 Lambton Quay, Wellington

New Zealand King Salmon (NZK): 1H20 Result Initial Impressions — Little Surprises, FY20 Guidance Reaffirmed