Amongst the myriad of capital raisings, dividend cuts and earnings downgrades caused by COVID-19, there are some ASX shares which look set to benefit from changing trends.
A positive update released this morning in relation to COVID-19 by Australian salmon farmer Tassal Group Limited (ASX: TGR) has seen its shares jump 3%. Meanwhile, the S&P/ASX 200 Index (ASX: XJO) is up 0.3%.
How has COVID-19 changed Tassal's market?
Recently, the majority of Australians have needed to change the way they live. This has been brought about by the government restrictions imposed in an attempt to stop the spread of COVID-19. However, when people's daily habits are changed, new habits and trends start to form.
The majority of new trends have created a negative economic impact for most companies. Think fewer people spending money thanks to shops and restaurants being closed, less travel and a growing unemployment rate. However, early trends regarding the behaviour of Tassal's customers have been noted as a positive.
Consumers are currently forced to spend more time at home. This means more home-cooked meals and less eating out, which creates a strong demand for Tassal's domestic retail market.
In addition to this, consumer confidence is currently low. Meaning, consumers are currently more careful on how they spend their money. Therefore, choosing a home-cooked meal becomes more likely than ordering takeaway or eating out at a restaurant when the option returns.
Tassal also noted a rise in consumer demand for sustainable products that have open traceability, with Australian made/grown produce they can trust being important to customers.
The company also considers itself to be a beneficiary from the increase in online traffic, with online delivery becoming the new 'norm'. As a result, late adopters of online shopping will become more comfortable with the process, leading to a long-term benefit from an increase in eCommerce and home delivery. Consequently, this also supports Tassal's domestic retail market – a market which has a greater value when compared to its export market.
FY20 outlook
Tassal's first-half results released in mid-February noted a strategy to drive growth in its harvest and sales for 2H20 and beyond. Today, the company reaffirmed its forecast for a material increase to its live biomass for FY20 compared to the prior corresponding period. This will be driven by a focus on sustainable farming and fish health practices, with bigger salmon generating larger margins.
In addition, Tassal has increased its forecasted prawns harvest by around 4%, with further growth expected in FY21 and beyond. The company cited a staged expansion of its farming operations to provide the growth.
Should you buy Tassal shares?
I like Tassal shares for its mix of growth and income and somewhat defensive earnings. In 1H20, it reported basic earnings per share of 20.62 cents while paying 9 cents of this out to shareholders as an interim dividend. This gives Tassal shares a tidy grossed-up trailing yield of 5.2% on current prices. However, this means that it still reinvested the majority of its earnings (the other 11.62 cents per share) into the company to provide future growth.
If we annualise its first-half earnings, we see that Tassal currently trades on a price-to-earnings (P/E) ratio of 10.77. However, I believe Tassal's P/E to be lower than this thanks to its forecast for strong harvest and sales in the second half.
Considering its yield and future growth, I believe this makes Tassal shares attractive today and would be happy to make an investment.
