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Should you buy Tassal Group Limited?

Tasmania-based salmon farmer and retailer Tassal Group Limited (ASX: TGR) released an operational update to the market today forecasting an improving return on assets for the second half of FY 2015.

Return on assets (ROA) is one measure of how a company uses its assets to generate a net profit. In years gone by Tassal concerned investors with a low return on assets, blamed on operational inefficiencies, a low margin export strategy, and ineffective marketing.

The group has recently abandoned its overseas export strategy and focused on the higher-margin domestic market which includes significant supply to supermarket businesses Coles and Woolworths Limited (ASX: WOW). Consequently the ROA in the second half of this financial year is forecast to hit 15%, which alongside an increasing salmon biomass points to a positive future.

The group has big growth plans via either expanding the size of existing fisheries or developing brand new ones. Moreover, growing consumer demand over the long term looks a strong tailwind for the business and its pricing power.

Fish farming businesses actually fall into the category of disruptive technologies and another aquaculture business on a much smaller scale is Clean Seas Tuna Limited (ASX: CSS). It’s focusing on serving the growing appetite for premium Yellowtail Kingfish and posted an underlying profit of $1.25 million last year, with a reasonable outlook.

Aquaculture businesses remain subject to considerable risks however, including environmental hazards, competitive pressures and poorly executed growth plans.

Selling for $3.75 Tassal trades on 12.4x estimated earnings per share of 30.1 cents in 2015. If able to deliver on its operational objectives over the years ahead analysts’ forecasts for strong dividend growth may support the share price to deliver decent returns.

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

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