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Why Tassal Group (TGR) Shares Are Stuck In A Trading Halt

Tassal Group Limited (ASX: TGR) shares have been placed in a trading halt this morning with the announcement of FY19 results and a capital raising. Here’s what you need to know.

About Tassal Group

Tassal is a Tasmanian-based salmon farming company that has been listed on the ASX since 2003. Tassal is Australia’s largest producer of Tasmanian-grown Atlantic salmon and its products are sold in Australia and internationally.

The 5 Key Points

  • Harvest was up 7% and sales were up 10.3% from FY18
  • Operating EBIT increased by 15.4% to $88.55 million (the video below explains EBIT)
  • Operating net profit after tax (NPAT) grew 12.5% to $56.6 million
  • Operating cash flow increased by 104.9% to $89.9 million
  • A final dividend of 9 cents per share (cps) was declared, up 12.5% from FY18

Analyst Estimates

According to Bloomberg, the consensus analyst estimate for NPAT was $61.45 million. Tassal reported operating NPAT of $56.6 million and statutory NPAT of $58.44 million.

While Tassal missed NPAT targets, the declared dividend of 9 cps was slightly higher than the Bloomberg estimate of 8.9 cps.

Management Commentary

Tassal CEO and Managing Director Mark Ryan said FY19 was a record year for the company.

“FY19 delivered another record result across all financial metrics, delivering growth for our customers, suppliers, staff, communities in which we operate, and shareholders,” he said.

Mr Ryan said Tassal expects strong growth in earnings in the short to medium-term generated by the expansion of the company’s prawn business, which is explained below.

Capital Raising

Tassal shares are in a trading halt in order to execute a capital raising. Tassal is undertaking a fully-underwritten share placement to raise approximately $108 million. There will also be a non-underwritten share purchase plan (SPP) to raise up to $25 million. Click here to learn what this means to you now. 

The placement will have an issue price of $4.40 while the SPP will have an issue price of $4.31 ($4.40 minus the 9-cent dividend). The money will be used to expand the Proserpine facility and accelerate growth in prawn production.

Tassal also announced it used a bank facility to acquire Exmoor Station for $25 million, a property that can be used for land-based aquaculture and is key to achieving Tassal’s long-term prawn production target of 20,000 tonnes per annum.

Are Prawns Key To Tassal’s Growth?

In terms of growth for Tassal, prawns may be the sector to watch. Tassal has only recently begun producing prawns, with revenue of $9.1 million from 453 tonnes in FY19. Prawns have a growing time of nine months from hatchery to harvest, whereas salmon has a growth time of three years.

With this short growth time, Tassal expects prawn production to increase to around 2,400 tonnes in FY20. If you make a rough calculation and assume Tassal receives the same price in FY20 as they did in FY19 for prawns, that could generate revenue of around $48 million. With a long-term production target of 20,000 tonnes per annum, prawns could easily be the biggest growth-driver for Tassal over the next few years.

If prawns aren’t your thing, the free report below has some other growth ideas.

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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.

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