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Here’s Why Tassal Group Limited shot up 5% in one day

As the market ended September on a sour note, one company ended the month with a sharp 5% one-day gain.

What: Tassal Group Limited (ASX: TGR) rose 18 cents to end Tuesday at $3.68. Over the past 12 months it is up about 20%, definitely beating the S&P/ASX 200 Index (ASX: XJO) (Index: ^XJO), which is dead flat in gains from the end of September 2013.

The aquaculture producer and distributor of salmon under its well known Tassal brand has made good business gains as well. In FY 2014, it reported a 22.6% net profit increase. That was on the back of improved margins from cost cutting and previous capex investments now paying off. It actually produced less fish in total, but its profit per kilogram of fish is up more.

So what: What should investors know about the changes at Tassal? Apart from the great earnings increase, the company is now more financially sound. Net gearing is 15%, down by more than half since FY 2010. Also, the investments it made to improve and streamline the business are driving returns on equity and assets steadily up.

More people are eating salmon and in a larger variety of ways as well. Health-conscious customers are enjoying salmon in sushi and using it more as a chicken substitute for grilling. Almost 100% of the company’s revenue comes from sales within Australia. Seen as fresh and safe by restaurants and consumers, the average salmon consumption has risen, making it more of an everyday food choice.

Now what: Over the next six years the aquaculture industry, estimated to be $40 billion currently, is expected to boom. Tassal Group will continue to promote its products to raise average salmon consumption. It will also expand by investing more in its facilities and increase fish production volumes. Investors may also want to know more about Clean Seas Tuna Limited (ASX: CSS), another fish producer wanting to expand business in Kingfish tuna.

Investors should be aware that Tassal has longer development and investment cycles than some other companies. A long-term investing view is needed, but should reward patient investors. The stock pays a decent 3.5% yield partially franked and has a price-earnings ratio of 12.

As good as the prospects for Tassal are, food production companies may not be a favourite amongst some investors. But companies with solid growth and a hefty dividend usually are.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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