5 reasons to buy Tassal Group Limited

Tassal Group Limited (ASX:TGR) has soared on the result of a regulatory inquiry.

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Much has been made of the potential for a 'Dining Boom' to follow the 'Mining Boom' with several businesses involved in the manufacture and export of foodstuffs being among the local bourse's top performers in 2015.

Baby food producer Bellamy's, vitamins retailer Blackmores Limited (ASX: BKL) and honey retailer Capilano Honey Ltd (ASX: CZZ) have all gone bananas on growing sales and strong prospects in large Asian markets.

Salmon farmer Tassal Group Limited (ASX: TGR) actually decided to focus on domestic markets rather than overseas markets in recent years, although this simplified strategy may be starting to pay dividends.

In fact the stock is up 28% over the past six months, compared to a 16% fall for the S&P/ASX 200 (Index:^AXJO) (ASX:XJO).

The improved sentiment partly the result of an Australian Senate Inquiry conclusion that the salmon farming industry in Tasmania was adequately regulated, despite strong dissent from the Greens party as to the Inquiry's conclusions.

I have five more reasons that the company still presents as a decent long-term buy.

  1. Value – Selling for $4.28 the stock trades on just 12.5x trailing earnings with much of the regulatory risk regarding the company's expansion plans now dissipated it's likely to enjoy a continued upward re-rating.
  2. Yield – Analysts' consensus forecasts have the group paying out 16 cents per share in FY16. This would place on it a partially franked yield of 3.7% at today's price.
  3. Growing demand – Salmon in its various edible forms is likely to see growing demand into the future as Australian dietary habits change and population growth increases largely via migration. Recently the group signed a significant supply agreement with supermarket discounter Aldi.
  4. Barriers to entry – In Australia, salmon can only be farmed in the cool waters of Tasmania which means it's hard to impossible for competitors to get a toe hold in the operationally complex commercial salmon farming industry. Fisheries licences are tightly regulated and in high demand, with Tassal's only real rival in Australia being the newly listed Huon Aquaculture Group Ltd (ASX: HUO).
  5. Growth – The group has plenty of organic and acquisitive growth potential in terms of salmon volumes and biomass sold to meet the growing demand. Throw in the prospect of rising prices and the outlook is bright. Tassal also recently expanded further into the seafood distribution business via the acquisition of De Costi and this should bring scale, supply chain and synergy advantages among others.

Tassal's not the only business worth considering if you're fishing for great ideas though….

Motley Fool contributor Tom Richardson owns shares of Tassal Group Limited. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. You can find Tom on Twitter @tommyr345 We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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