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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>
NZ$8m PGF loan towards Southland Salmon hatchery
Sanford (SAN) has received NZ$8m PGF (Provincial Growth Fund) loan towards the development of a RAS (Recirculating Aquaculture System) Salmon hatchery in Southland (<a href="https://www.sanford.co.nz/assets/Media-release-Sanford-RAS-hatchery-funding-announcement-240720.pdf" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://www.sanford.co.nz/assets/Media-release-Sanford-RAS-hatchery-funding-announcement-240720.pdf&amp;source=gmail&amp;ust=1595644948766000&amp;usg=AFQjCNG5Pv6fsRzJJadTx1dopeJapQFK2A" rel="noopener">release</a>). The hatchery will be scalable and be built in stages, enabling future growth should SAN be successful in its resource consent application to eventually farm an additional 25,000mt of Salmon in Southland.
This is an encouraging development, and a tangible example of the Government’s commitment towards growing the aquaculture industry.
Open ocean optionality
The Government has a long-term strategic goal for the Aquaculture sector, putting in place a target to grow it to a NZ$3bn industry by 2035 (2019 ~NZ$620m). Open ocean farming represents a significant opportunity for the New Zealand aquaculture sector, offering meaningful upside potential to both SAN and New Zealand King Salmon (NZK). However, at this stage open ocean represents long term option value rather than forecastable cash flows. We have a positive view of the long-term prospects for the aquaculture industry with OUTPERFORM ratings on both NZK and SAN.
Other details
<ul>
<li>The first stage of the hatchery will have ability to produce 1.5m smolt (6,000mt annual harvest volume, slightly more than required for SAN’s existing BGB farm)</li>
</ul>
o&nbsp;&nbsp;At full capacity the hatchery will produce 6m smolt (24,000mt)
<ul>
<li><a href="https://www.nzte.govt.nz/blog/a-business-case-for-open-ocean-finfish-aquaculture" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://www.nzte.govt.nz/blog/a-business-case-for-open-ocean-finfish-aquaculture&amp;source=gmail&amp;ust=1595644948766000&amp;usg=AFQjCNHd7u_TvyeZMUb3FqwKYggsB0jtQg" rel="noopener">NZTE’s recent report</a>&nbsp;on Open Ocean, estimates the total capital cost of a RAS hatchery producing 2.6m smolt (10,000mt annual harvest volume) is NZ$25m with a build time of two years</li>
</ul>
o&nbsp;&nbsp;Stage one is expected to cost NZ$16m
<ul>
<li>RAS hatcheries have the potential to lift the productivity of farming salmon</li>
</ul>
o&nbsp;&nbsp;Under the current model smolt are transferred to sea at ~130g. RAS hatcheries can more easily allow for smolt transfer to occur at 1kg, reducing time spent at sea, allowing the site to be farmed more intensely. Additionally, reduced sea time can lead to a higher quality fish that is less susceptible to standard stressors, reducing annual mortalities. Salmon currently spend ~16 months at a sea farm
Estimated capital costs of Open Ocean assets (10,000mt salmon farm)
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.4&amp;permmsgid=msg-f:1673064394466014174&amp;th=1737eb33d68033de&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ-UXBcfRCV2gL_SpsLLLKaVMo7mCTrxf-bsUhO8YZuXtnOxkLOqcSBvcmyh3nPDTwaEAxANjInG_a0jSocEba9MXd1dhQ7xHqJA_H633C0-pdkYTSWyVYuFkbM&amp;disp=emb" width="254" height="164" class="editor-image img-responsive" data-image-whitelisted=""></figure>
Source: NZTE, Aquaculture Direct, Forsyth Barr analysis
Guy Hooper&nbsp; Analyst, Equities <a href="https://www.forsythbarr.co.nz/" target="_blank" rel="noopener">Forsyth Barr Limited</a>
P: +64 4 495 5255 | TF: 0800 367 227&nbsp; Level 22, NTT Tower, 157 Lambton Quay, Wellington

Sanford (SAN)
NZ$8m PGF loan towards Southland Salmon hatchery
Sanford (SAN) has received NZ$8m PGF (Provincial Growth Fund) loan towards the development of a RAS (Recirculating Aquaculture System) Salmon hatchery in Southland (release). The hatchery will be scalable and be built in stages, enabling future growth should SAN be successful in its resource consent application to eventually farm an additional 25,000mt of Salmon in Southland.
This is an encouraging development, and a tangible example of the Government’s commitment towards growing the aquaculture industry.
Open ocean optionality
The Government has a long-term strategic goal for the Aquaculture sector, putting in place a target to grow it to a NZ$3bn industry by 2035 (2019 ~NZ$620m). Open ocean farming represents a significant opportunity for the New Zealand aquaculture sector, offering meaningful upside potential to both SAN and New Zealand King Salmon (NZK). However, at this stage open ocean represents long term option value rather than forecastable cash flows. We have a positive view of the long-term prospects for the aquaculture industry with OUTPERFORM ratings on both NZK and SAN.
Other details

The first stage of the hatchery will have ability to produce 1.5m smolt (6,000mt annual harvest volume, slightly more than required for SAN’s existing BGB farm)

o&nbsp;&nbsp;At full capacity the hatchery will produce 6m smolt (24,000mt)

NZTE’s recent report&nbsp;on Open Ocean, estimates the total capital cost of a RAS hatchery producing 2.6m smolt (10,000mt annual harvest volume) is NZ$25m with a build time of two years

o&nbsp;&nbsp;Stage one is expected to cost NZ$16m

RAS hatcheries have the potential to lift the productivity of farming salmon

o&nbsp;&nbsp;Under the current model smolt are transferred to sea at ~130g. RAS hatcheries can more easily allow for smolt transfer to occur at 1kg, reducing time spent at sea, allowing the site to be farmed more intensely. Additionally, reduced sea time can lead to a higher quality fish that is less susceptible to standard stressors, reducing annual mortalities. Salmon currently spend ~16 months at a sea farm
Estimated capital costs of Open Ocean assets (10,000mt salmon farm)

Source: NZTE, Aquaculture Direct, 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): NZ$8m PGF Loan Towards Southland Salmon Hatchery

Sanford Limited

Sanford (SAN): NZ$8m PGF Loan Towards Southland Salmon Hatchery