Investment Idea

Insatiable Appetite for Salmon Accelerates Major Growth in Farming

16 Jan 2018 | 3 min read

The farmed-salmon industry has boomed on the back of limited global supply, which has stagnated at 0.7-1 million metric tons a year. The worldwide supply of farmed salmon has grown fivefold since 1995 to more than 2 million tons in 2016, with Norway being by far the biggest farmer. Other producers are Scotland, Chile, Canada, Australia and New Zealand, where sea temperatures are most suitable for salmon farming, according to Bloomberg.

The seafood industry experiences a positive sector outlook due to an insatiable appetite for salmon: The following companies are well positioned, according to a recent research note from Handelsbanken:

Favourable biological conditions are expected for the salmon farming company Bakkafrost, due to growth prospects in its harvest volumes. They made up approx. 54,500 tonnes in 2017 and are assumed to rise to approx. 70,000 tonnes in 2021. Despite the weakened price outlook for 2018, Handelsbanken remains positive on the medium term prospects for the seafood industry. Grieg Seafood is predicted to improve and expand its operations, with a possibility of reaching 94,000 tonnes of harvest in 2020.

Marine Harvest, the world's largest salmon farmer, could record stronger profitability despite the decline in salmon prices from a record high in 2015 and in 2016. A normalization of its harvest, upon greater control of sea lice, will lift its 2018 volume near to its highest level. Its dividend yield is currently close to 9%, according to Bloomberg. Marine Harvest's 2016 salmon harvest volume of 380,621 metric tons is more than double that of its biggest competitor, Leroy Seafood Group's 164,200 tons with an expected dividend yield of 5-7% in 2018.

Norway Royal Salmon is expected to increase its harvest volumes in northern Norway with prospects for volume growth in the Icelandic associated company (NRS holds 50% of Arctic Fish, with 9,000 tonnes of capacity and potential for more licences) and through development licences. Although SalMar’s earnings are impacted by moderate supply growth in the short run, the longer-term outlook remains positive, accompanied with a strong operational performance.

How to participate in the growth of the seafood industry

The Solactive Nordic Seafood and Fishing Performance-Index, calculated and distributed by Solactive AG, tracks the performance of a portfolio of Scandinavian stocks operating along the value chain of seafood production. The Index is published in Norwegian krone. It tracks an interesting sector as global per capita fish consumption rose above 20 kilograms a year. Seafood demand is sensitive to increases in income, and thus this economic trend, combined with population growth rates, will be the major determinants of growing future trade flows and rising fish consumption, according to the Food and Agriculture Organization of the United Nations. By investing in the Solactive Nordic Seafood and Fishing Performance-Index, one can easily participate in the growing seafood sector done with a single transaction, thereby gaining a broad diversification. The composition of the basket is transparent at any time.

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