It might be good news for consumers, but it’s bad news for investors on farmed seafood companies, especially salmon producers like Huon Aquaculture.
The company told the ASX yesterday that the global oversupply of salmon will see the company’s earnings “substantially lower” in 2020-21 than in 2019-20.
The warning saw the shares drop 12% to $2.69 yesterday.
Huon says it is on track to meet its own production target of 36,000 tonnes of salmon this financial year, having already produced 19,290 in the first half of 2020-21.
But about 40 per cent of that fish has been sold to “the lower priced export spot market” because prices have slumped.
“Relative to the first six months of 2020, international salmon prices declined by around 40 per cent and, despite expectations in October that this would be short-lived, remained under pressure to the end of the year with no signs to indicate recovery in the next several months,” the company told the ASX on Tuesday.
Domestic prices were holding up, but the average international price was now expected to be about $11.40 per head on gutted kilo (HOG kg), compared to $13.37 in late 2019.
Production costs were currently around $9.50 per HOG kg, but export costs were rising due to fewer international flights (because of border lockdowns).
“This together with continued high freight costs, the ongoing uncertainty around the performance of the global economy in the second half and forecast expansion in the global supply of salmon by 0.5 per cent to 2 per cent tin 2021 has resulted in a revision to our internal projections for operating earnings for 2020-21.”
Analysts currently expect earnings to be about $31.3 million.
Huon also warned of non-cash impairment costs in first half results due to the company’s market capitalisation trading below book value. The stock price hit an all-time low of $2.56 just before Christmas, but had been trading at an average of $4.16 over the past five years.
Looking into the rest of 2021 Huon is looking to a 9% fall in Chile’s salmon production this year to help prices, and hoping for restaurants to return to pre-COVID levels, along with their demand for salmon.
Huon said it has diversified its export market due to the rising tension between Australia and China, and now sends less than a third of total export tonnage there.
Meanwhile, it still hasn’t been able to work out how a fire started and damaged a fish pen, allowing 50,000 salmon to escape. It lost a further 130,000 baby salmon when a net was torn during cleaning. Huon estimates $1.8 million worth of fish escaped.
It also flagged a $2.1 million hit due to suspected co-ordinated criminal conduct by employees at its Ingleburn processing plant in Sydney.
These one off items will be confirmed in the full interim results to be released on February 25.
