Share to Buy: Tassal Group Limited (TGR)

Tassal Group (TGR) is Australia’s largest Atlantic salmon producer. Tasmanian-based, it is involved in the hatching, farming, processing, sales and marketing of salmon.

The group has supply agreements with the big supermarkets Coles and Woolworths, but also distributes to fresh fish shops. It also exports its salmon to overseas markets.

TGR’s fresh water and seawater operations assist in the salmon aquaculture and farming process. This includes two hatcheries, six marine farms, and three processing facilities.

Focus on domestic

TGR has focused its strategy recently on growing its share of the domestic salmon market. It’s a strategy that boosted TGR’s EBIT margin from 17.2% in FY12 to 19.6% in FY13.

In FY13, it was able to grow sales revenue per kilogram sold via a combination of price increases and a marketing campaign that boosted domestic per capita consumption.

Domestic sales revenue surged 16%, offsetting strategic reductions in export and contract growing volumes. In fact, domestic sales comprise 98% of total revenue, compared to 87% a year earlier.

The company has minimal exposure to volatile global salmon prices, and the undersupply of salmon in the domestic market means TGR maintains a degree of pricing power in negotiating supply agreements.

TGR’s balance sheet is in healthy shape, with a net debt to equity ratio of just 18.4% in FY13.

Earnings quality was also very high, with operating cash flow as a percentage of operating income at over 100% in FY13.