Why Tassal Group Limited shares soared today

Tassal Group Limited (ASX:TGR) shares are climbing higher.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares in Tasmanian salmon farmer Tassal Group Limited (ASX: TGR) have been touching record highs at $5.08 this week as investors warm to its potential to deliver growing profits long into the future.

The stock is up 37% since September 2015 when the conclusions of a Senate Inquiry into the sustainability of salmon farming in Tasmania effectively halted the prospect of regulation seriously limiting Tassal's expansion plans on The Apple Isle.

Back in April 2015 I wrote about how shares sunk to a 52-week low of $3.11 after the announcement of the Senate Inquiry into the Tasmanian salmon farming industry. The Inquiry's terms of reference included the potential to seriously restrict the growth of salmon farming in Tasmania on environmental protection grounds.

This resulted in institutional investors getting cold feet and dumping the stock, but buying back in during September after the regulatory risk effectively dissipated with the Inquiry concluding that the industry was already sufficiently regulated despite protests from the powerful Tasmanian Greens party interests.

The chart below shows the lull in share price between March and September while the Australian Senate Inquiry threatened to sink the Tasmanian salmon farming industry. The rebound since September is due to institutional buyers moving back into the stock after the Inquiry concluded the industry required no further regulation beyond what already existed.

Tassal

Source: Google Finance

Salmon farming is a disruptive technology in its own right, but not exactly a sexy disruptive technology like cloud accounting business XERO FPO NZ (ASX: XRO) or digital jobs marketplace Freelancer Ltd (ASX: FLN). Although on the plus side that means it does tend to generate far less investor excitement, which is a good thing for its share price relative to the valuations of the sexier tech disruptors.

In fact despite its recently rocketing share price, Tassal still trades on just 15x trailing earnings at $5.08 and it offers an estimated dividend yield around 3.1%.

Both Tassal and its rival Huon Aquaculture Group Ltd (ASX: HUO) also both benefit from growing demand for salmon due to population growth and the changing dietary habits of your average Australian.

The fact that salmon farming can only be practiced in the cold waters of Tasmania also provides something of a moat against competitors and means earnings growth should be leveraged to the twin tailwinds of organic demand growth and potential salmon price increases. Tassal's products are commonly found in the big supermarkets at Woolworths Limited (ASX: WOW), Coles and Aldi.

Tassal also bought the De Costi seafood sourcing and distribution business in 2015, which gives it more strength as a diversified and vertically integrated seafood retailer with potential to extract synergies and benefit from scale over the long term.

Foolish takeaway

An investment in Tassal Group continues to carry risks around the natural environment, regulation, and the potential for a fall in salmon or other seafood prices.

However given the valuation, tailwinds and handy (5% franked) 3.2% yield it still looks a reasonable bet to outperform the market over the long term.

Motley Fool contributor Tom Richardson owns shares of Tassal Group Limited. You can find Tom on Twitter @tommyr345 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. 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.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »