Tough second half takes its toll on Huon
Name: Huon Aquaculture Group Ltd (ASX:HUO)
Market Capitalisation: $412 million
Opening Share Price: $4.72
Despite delivering a record operating net profit of $35.4 million for fiscal 2018, salmon producer Huon Aquaculture’s result has fallen short of expectations.
Analysts at Ord Minnett were forecasting a net profit of $39 million and a full year dividend of 15 cents per share.
While the full year dividend of 10 cents per share was well short of the broker’s expectations, it should be noted that consensus dividend forecasts of 12.8 cents per share didn’t reflect such a significant shortfall.
It is worth digging below the headline figures in terms of assessing the result as the company delivered a record harvest tonnage and achieved strong pricing in a healthy supply/demand market.
Growing conditions impact production
Difficult growing conditions prevailed in the second half of fiscal 2018, and management said that this situation has continued to impact the group.
Consequently, Huon has commenced fiscal 2019 with a lower biomass than had been projected.
While the company anticipates a fiscal 2019 harvest volume of circa 20,000 tonnes, below the record level achieved in FY2018, stronger pricing is expected to deliver continued growth in operating EBITDA.
Beyond fiscal 2019 management expects Huon to return to production levels in line with the market’s long term average growth of approximately 10%.
This outcome, supported by market expectations that pricing will continue to be underpinned by the shortage of supply over demand, should deliver continued growth in operating EBITDA in FY2020.
However, whether the medium to long-term outlook is enough to appease the market remains to be seen, so investors should seek professional financial advice if considering this stock for their portfolio.
With the company trading on a trailing PE multiple of 15.6 there is little room for underperformance.