Huon Aquaculture Group Ltd (ASX: HUO) has seen its share price fall to $4.70, a month after the salmon and trout producer listed on the ASX.
Shares were offered at $4.75 in the IPO, suggesting institutional investors and investors who participated in the broker firm offer are now underwater on their investment. So is it time for retail investors to take a closer look?
Given its similarities to another ASX-listed salmon producer Tassal Group Limited (ASX: TGR), I've added a comparison table below.
| 2014 Financials | Huon Aquaculture | Tassal |
| Revenues ($m) | 188.4 | 260.8 |
| EBITDA ($m) | 56.9 | 78.6 |
| EBIT ($m) | 48.8 | 63.1 |
| NPAT ($m) | 32.5 | 41.1 |
| Shares on issue | 87.3 | 146.5 |
| EPS ($) | 0.37 | 0.28 |
| Current Price | 4.70 | 3.90 |
| P/E (x) | 12.6 | 13.9 |
| Dividend Yield % | N/A | 3.0% |
| Market Capital ($m) | 410.3 | 571.4 |
| Debt ($m) | 50.7 | 60.3 |
| Cash ($m) | 75.2 | 7.7 |
| Enterprise Value ($m) | 385.8 | 624.0 |
| EV/EBITDA (x) | 6.8 | 7.9 |
Source: Company reports
As you can see, both companies trade on similar valuations – although Huon looks slightly cheaper. 94% of Huon's revenues are derived from domestic customers, which include ALDI, Woolworths Limited (ASX: WOW), Coles – owned by Wesfarmers Ltd (ASX: WES) and Costco. Tassal also counts Woolies and Coles among its major customers.
Strong demand domestically has seen Australian producers focus more on this market, rather than the export markets. Tassal generated just $40,000 in export revenues in the 2014 financial year.
But that may be about to change, given the new Free Trade Agreement with China. Tariffs on seafood are being removed over four years, giving both Huon and Tassal an additional market if they want.
The one concern that needs to be raised is that fish farming can be capital intensive. As an example, Huon intends to spend $200 million over the next few years on increasing production, more efficient production practices and maintaining a consistent size and quality of salmon. That could mean debt levels rise or the company asks shareholders to cough up some funds.
As a result, I'd want a cheaper price and be leaving both Tassal and Huon alone for now and go fishing in other sectors.
