The share price of leading salmon farmer Tassal Group Limited (ASX: TGR) has climbed 26% in the past 12 months but based on a review of new data the stock could still go higher.
Australian Food News has highlighted the finding of a recently released IBISWorld report which has shown that Australia is experiencing soaring seafood consumption beyond what the Australian fishing and aquaculture industries can currently provide for.
According to IBISWorld, seafood consumption is set to increase by around 5% by 2021. Current consumption is 18.7 kgs per person; this is forecast to rise to 19.6 kgs per person by 2021.
In contrast, Australia’s seafood industries which are broken down into the fishing industry which includes prawns, rock lobster, crabs, octopus and scallops and the aquaculture industry which includes salmon, trout, oysters and crustaceans is forecast to expand just 2.7% by 2021.
The report would seem to suggest that demand for seafood is likely to outstrip supply over the next few years which could bode well for listed aquaculture stocks, however, the article did note that input costs such as wages were driving up operating costs.
Given the favourable thematic of declining wild fish numbers, an increased focus on sustainable farming practices, increased domestic disposable income, and rising demand for higher protein products from Asian consumers the outlook for companies such as Tassal would appear to be favourable, as well as peer Huon Aquaculture Group Ltd (ASX: HUO)
According to Thomson Consensus Estimates, Tassal should earn 35 cents per share (cps) in financial year (FY) 2016, rising to 38 cps in FY 2017. With the share price currently trading around the $4.60 mark, this implies a FY 2017 price-to-earnings ratio of just 12.1 times, which is significantly below the market average of the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).
However, investors should remember the company carries environmental and regulatory risks, while being subject to the vagaries of Mother Nature.