Shares in Tassal Group Limited (ASX: TGR) fell around 3 per cent today after the salmon farmer posted operating earnings of $41.3 million on revenues of $226.8 million for the six months ending December 31 2015.

The operating earnings (adjusted for one off costs) and revenue are 11.2% and 50.2% up on the prior corresponding period (pcp).

The result was something of a mixed bag though as unadjusted earnings were down 7.8%, which dragged earnings per share down to 17.2 cents from more than 20 cents in the pcp.

The statutory net profit was also down on the pcp due to movements on the balance sheet as accounting standards mean the group has to adjust the future value of biological assets according to the net market value of salmon stock levels.

Accounting adjustments aside, the growth in operational earnings and 7.1% lift in the interim dividend to 7.5 cents per share are two positives given the six-month period endured soft salmon prices and an operational focus on the De Costi Seafood acquisition.


For investors the real consideration remains the outlook for the business, which still appears underpinned by strong underlying demand for farmed salmon and the opportunity to leverage the De Costi Seafoods acquisition.

During the half-year Tassal agreed to pay $50 million upfront to acquire De Costi with earn outs up to an additional $30 over the next three years. Investing cash outflows for the period of $48.9 million reflect this and the stock’s outlook is leveraged to management’s ability to deliver on its ambition to grow margins by extracting synergies and cost savings from the De Costi business.

Tassal aims to lift margins by eliminating inefficiencies in a seafood supply chain that traditionally has many vertical layers of incremental supply chain price increases via the procurement, processing and distribution elements prior to goods reaching supermarkets like Woolworths Limited (ASX: WOW) or wholesale customers.

If Tassal can build a world class vertically integrated salmon and seafood distribution business then there would appear to be a large addressable market and plenty of opportunity to lift margins.

Should you buy?

Overall the shares look reasonable value on around 12x estimated forward earnings of 34 cents per share for the full financial year, with an estimated yield in the region of 3.6%.

However, investors will need to have faith in management’s competence and remember that the business has considerable regulatory and environmental risks to navigate. Another salmon farmer due to report soon is Huon Aquaculture Group Ltd (ASX: HUO), although there may be better opportunities available on the ASX elsewhere at the moment.

Discover the 'new breed' of blue chips that could take your portfolio higher in 2016

Forget Tassal! These 3 "new breed" top blue chips for 2016 pay fully franked dividends and offer the very real prospect of significant capital appreciation. Click here to learn more.

The report is free! No credit card required.


Forget BHP and Woolworths. This "dirt cheap" company is growing like gangbusters, and trading on a 5.6% dividend yield, FULLY FRANKED (8% gross). With interest rates set to stay at these low levels for years to come, for hungry investors, including SMSFs, this ASX company could be the "holy grail" of dividend plays for 2016.

Enter your email below to discover the name, code and a full investment analysis in our brand-new FREE report, “The Motley Fool’s Top Dividend Stock for 2016.”

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our">Financial Services Guide (FSG) for more information.

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.