Motley Fool Australia

Are the Tassal Group Limited results a strong buy signal?

fish

Salmon farmer and producer Tassal Group Limited (ASX: TGR) today posted a net profit of $30.3 million on revenue of $151.5 million for the six months ending December 31, 2014. The profit and revenues are up 34.8% and 12.3% respectively on the prior corresponding period.

The dividend was up an impressive 27.3% over the pcp to 7 cents per share, while gearing was also marginally reduced.

The operating cash flow was down 34.6% to $18.9 million, with the business saying this reflected substantial investment in a strategy designed to grow fish numbers and size. While this may disappoint some analysts and number crunchers, the strategy may pay off handsomely in the years ahead.

Tailwinds

In Australia retail and wholesale demand for salmon remains strong with revenues again growing proportionately faster than volumes sold for both sectors.

Tassal is also a dominant supplier and unlikely to ever get muscled out of the market given the complexities of breeding salmon on a commercial scale.

Disruptive technology

Indeed, as a fish breeder and farmer it probably employs the ASX’s oldest disruptive technology, yet the business now has the opportunity to employ far newer disruptive technologies to grow super-sized profits.

The group is investing heavily in ways to breed bigger fish because that’s where the profit is and what underpins the long-term investment case. A future of fast-growing giant salmon may yet deliver some even faster-growing profits for shareholders.

Another big catch?

Tassal announced it is also interested in acquiring rival salmon producer De Costi, although there are no guarantees of a deal and the Tasmanians have a substantial debt load to manage already.

Decent value

The business still carries substantial risks with competition and environmental calamities among them, but in my opinion Tassal still trades on a reasonable valuation given its growth outlook. Selling for $4.02 it’s on a price-earnings of 12.5, with an estimated forward yield around 3.5%.

Disruptive technology stocks are loved by many investors, however, probably the world’s greatest investor Warren Buffett prefers stocks that are just plain wealth creators…

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Returns as of 6th October 2020

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

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