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How the Tassal Group Ltd share price could track salmon prices higher

The Tassal Group Ltd (ASX: TGR) share price leapt 6% higher to $4.60 today after it posted better-than-expected results for the half-year ending December 31 2016. Below is a summary of the results with comparisons to the prior corresponding half.

  • Operating profit after tax of $20.5 million, up 6.2%
  • Revenues of $219.3 million, down 3.3%
  • Operating EBITDA of $43.1 million, up 4.4%
  • Operating cashflow of $24 million, down 5.9%
  • Interim dividend of 7.5cps, flat on prior period
  • Net debt to equity ratio of 34.6%, versus 34.5% in prior period

The Tasmania-based salmon producer is once again heading to a 52-week high after rising salmon prices and a favourable sales mix helped lift margins despite higher salmon growing costs.

This is a business that has some attractive characteristics given the growing underlying per capita demand for salmon and limited domestic supply capped as it is by the regulatory restrictions on salmon farming imposed by the Tasmanian state government.

Moreover, the chief executive forecast for the company to “generate increased revenues and earnings for the remainder of FY17” alongside a prediction for “strong growth in the 2018 financial year. Fuelling the CEO’s ebullience is the rising global salmon price due to supply issues in other cold water regions globally and the opportunity to sell more into the higher-margin wholesale channels.

Tassal’s arch rival on the Apple Isle is Huon Acquaculture Group Ltd (ASX: HUO), a company it has been in a running dispute with over acquacultural practices in Tasmania’s Macquarie Harbour. The Huon share price is also heading towards a record high today as rising salmon prices serve to float all boats.

Due to its debt, valuation and mixed track record I’m not a buyer of Tassal shares, although it’s possible that if the stars continue to align for it there could be more share price gains ahead.

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.