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Forsyth Barr

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Sanford (SAN)</h2>
1H20 result — Initial thoughts: Disappointing result weighed down by Wild Catch
Sanford (SAN) reported a disappointing result, with 1H20 adjusted EBIT of NZ$23.2m, down -16% (adjusted for the sale of the Pelagic business) on the prior year period. This represents an EBIT/kg of NZ$0.47/kg vs. NZ$0.57/kg in the prior period. A weak Wild Catch result in combination with sales timing issues offset continued positive momentum in the Aquaculture business.
SAN lowered its interim dividend to 5cps (1H19 interim dividend 9cps), reflecting the elevated uncertainty due to COVID-19.
Outlook and view
A weak 1H20 raises questions around the implied 2H20E growth, and we expect to see consensus downgrades to earnings.
COVID-19 has weighed on Foodservice globally, through which SAN typically sells it high value branded product. We look for more commentary on SAN’s success redeploying volume into alternative channels. The near term outlook remains opaque with timeframes around an expected recovery in the foodservice channel uncertain.
Divisional insights
<ul>
<li>Wild Catch: Sales volume fell -8% (excluding the impact of Pelagic) on the prior period, driven by a weak Antarctic toothfish catch, down -39%, and a sales timing difference with Hoki and squid volume in inventory.</li>
<li>Mussels: Mussel volume and prices are tracking well, with sales volume up +5% and revenue up +13% on the prior year period.</li>
<li>Salmon: Salmon maintained positive momentum, with both volume and price growth. Although the closure of Foodservice will weigh on Salmon performance in 2H20E, SAN sells ~80% of its salmon domestically and therefore is more defensive to the impacts of COVID-19 than peers.</li>
</ul>
o&nbsp;&nbsp;SAN has also lodged a resource consent application for a series of significant open ocean salmon farms, Project South, which at full capacity would produce 25,000 green weight tonnes (GWT) per annum, although we suspect timeframes are significant. SAN currently produces ~3,500GWT salmon per annum.
1H20 profit and loss summary (NZ$m)
<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:1667880683344999090&amp;th=172580a50a83b2b2&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ9J05fCV_ollXOMHklcriAjX9v4s6Z-Xn57R6E7BJanLYS0HSjo5EycasUISNR6ZU3uoEMIZ6n-PHdYARcl1wiM_e5JOMd6gA8HGbsE67t32alj6paxtWNXktI&amp;disp=emb" width="455" height="126" class="editor-image img-responsive" data-image-whitelisted=""></figure>
Source: Company reports, Forsyth Barr analysis
Guy Hooper&nbsp; Analyst, Equities Forsyth Barr Limited
P: +64 4 495 5255 | TF: 0800 367 227&nbsp; Level 22, NTT Tower, 157 Lambton Quay, Wellington

Sanford (SAN)
1H20 result — Initial thoughts: Disappointing result weighed down by Wild Catch
Sanford (SAN) reported a disappointing result, with 1H20 adjusted EBIT of NZ$23.2m, down -16% (adjusted for the sale of the Pelagic business) on the prior year period. This represents an EBIT/kg of NZ$0.47/kg vs. NZ$0.57/kg in the prior period. A weak Wild Catch result in combination with sales timing issues offset continued positive momentum in the Aquaculture business.
SAN lowered its interim dividend to 5cps (1H19 interim dividend 9cps), reflecting the elevated uncertainty due to COVID-19.
Outlook and view
A weak 1H20 raises questions around the implied 2H20E growth, and we expect to see consensus downgrades to earnings.
COVID-19 has weighed on Foodservice globally, through which SAN typically sells it high value branded product. We look for more commentary on SAN’s success redeploying volume into alternative channels. The near term outlook remains opaque with timeframes around an expected recovery in the foodservice channel uncertain.
Divisional insights

Wild Catch: Sales volume fell -8% (excluding the impact of Pelagic) on the prior period, driven by a weak Antarctic toothfish catch, down -39%, and a sales timing difference with Hoki and squid volume in inventory.
Mussels: Mussel volume and prices are tracking well, with sales volume up +5% and revenue up +13% on the prior year period.
Salmon: Salmon maintained positive momentum, with both volume and price growth. Although the closure of Foodservice will weigh on Salmon performance in 2H20E, SAN sells ~80% of its salmon domestically and therefore is more defensive to the impacts of COVID-19 than peers.

o&nbsp;&nbsp;SAN has also lodged a resource consent application for a series of significant open ocean salmon farms, Project South, which at full capacity would produce 25,000 green weight tonnes (GWT) per annum, although we suspect timeframes are significant. SAN currently produces ~3,500GWT salmon per annum.
1H20 profit and loss summary (NZ$m)

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

Sanford (SAN): 1H20 Result — Initial Thoughts: Disappointing Result Weighed Down by Wild Catch

Sanford Limited

Sanford (SAN): 1H20 Result — Initial Thoughts: Disappointing Result Weighed Down by Wild Catch