Bakkafrost: Best-in-Class, Vertically Integrated Salmon Farmer

Robert Leitz of iolite Partners presented his in-depth investment thesis on Bakkafrost (Oslo: BAKKA) at Best Ideas 2018.

Bakkafrost is a best-in-class, vertically integrated salmon farmer with operations in the Faroe Islands. The company owns permanent licenses in geographic locations suitable for salmon farming, boasts state-of-the-art production facilities, decades of technical know-how, and is run by a shareholder-friendly owner-manager. At NOK 320 per share, Bakkafrost recently traded at just 11x LTM P/E and 7.7x LTM EV/EBITDA. This is low for a high-quality company in an industry with strong tailwinds: demand is growing (demographics, global development, zeitgeist), but supply is struggling to keep up (suitable locations, politics, biological hazards). Bakkafrost is a prudently run company that has shown impressive organic growth over the last five years (ROE 30% annually, EBITDA 30%, harvest 6%) and is likely to grow production by another 30% (6% annually) until 2021 given current capex projects. Robert believes the market has failed to catch up with Bakkafrost’s growth profile and is overestimating the impact from short-term price swings (supply interruptions in Chile and Norway spiked salmon prices in 2016-2017; they recently came down from those highs).

About the instructor:

Robert Leitz is iolite’s sole owner and managing director. Before founding iolite in 2008, he held positions at various financial institutions, including TPG Credit (a hedge fund), Goldman Sachs’ European Special Situations Group, and KPMG Corporate Restructuring. Robert graduated from the University of St. Gallen (HSG), Switzerland, with a Master of Science in Business Administration and Economics, and wrote his master’s thesis under the guidance of Prof. Eli Noam at Columbia University, New York.

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