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Is Tassal Group Limited the best agribusiness play?

The $530 million Tasmanian-based salmon farmer Tassal Group Limited (ASX: TGR) held its annual general meeting this week.

The AGM reconfirmed the positive momentum in the group’s business which has helped drive the share price up nearly 11% this calendar year.

The board noted that the group is targeting a return on assets (ROA) of 15% in financial year (FY) 2015 which would be a big step-up from the 11.8% achieved in FY 2014.

Business swimming in the right direction

It’s not just the ROA metric which is moving in the right direction for shareholders. Over the past five years, Tassal has increased its earnings from each kilogram of salmon sold from $2.20 to $3.30, the group has also significantly strengthened its balance sheet with gearing declining from 36.5% to just 15.4%, and the fish farmer has boosted operating cash flows from $28.5 million to $50.6 million.

Vertical integration – a key advantage

One of the most impressive aspects of Tassal’s business – apart from the science behind its salmon farming processes – is the company’s ability to vertically integrate its business from farming, to wholesaling, to building a well recognised and regarded retail brand. This structure is allowing Tassal to add product lines and push through price increases and should help drive earnings growth in FY 2015, particularly in the second half.

Few agribusiness investment options for investors

It’s a rather unusual situation that a country known for its farming heritage and comparative advantage in agricultural production has such a limited opportunity set available to invest in!

In fact, Tassal is one of the few options available to investors on the ASX and it’s also a leading example of what can be achieved by a well managed and positioned agribusinesses. It’s not however the only stock worth watching…

TFS Corporation Limited (ASX: TFC) is an owner and a manager of sandalwood tree plantations in Western Australia. Although not so widely known or used in Australia, the oil and heartwood from sandalwood is enormously popular in certain regions, particularly India. With sandalwood commanding a huge premium, TFS has literally grown a successful business from the ground up. With harvesting of early tree plantations beginning to occur, the group should see increased revenues in coming years.

Atlas Pearls and Perfumes Ltd (ASX: ATP) share price has soared 120% in the last year with the company now boasting a market capitalisation of nearly $40 million. The little known company has developed substantial pearl farming operations in Indonesia and also has a natural ingredients processing plant in Tasmania which is a new line for the group and will see it produce fragrances and flavours. Like Tassal, Atlas is vertically integrating its business by not only farming and wholesaling pearls but also opening retail stores to sell branded Atlas pearl jewellery through.

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Returns as of 6th October 2020

Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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