Thread by @DownunderValue

Huon $HUO $HUO.AX is the #2 salmon aquaculture business on the #ASX, and is in the midst of a takeover bid from Brazilian JBS at a 38% premium to it's recent price.

So, what does this mean for Tassal $TGR $TGR.AX, the #1 salmon aquaculture business?

Let's take a look.👇

Huon was a turnaround / asset play. The turnaround thesis is that they could improve their operating margins and FCF on what was once a great business; the asset thesis is that you can't readily get licenses for salmon aquaculture anymore. Timing was never certain..

The bid from JBS $JBSAY unleashes all that value for Huon shareholders today - including the Bender family that owns ~53% of the stock and is behind the 'strategic review'.

asx.com.au/asxpdf/2021080…

Huon is now valued at $440m MC, though better to look at EV due to debt levels that is now $835m.

Tassal as of Friday's close was an EV of ~$1.2bn, though I note today's stock price is already up ~8%. 👍

Tassal over the past few years has been a machine when it comes to topline revenue or EBITDA. Only looking at the salmon business, you can see at Huon's takeover price it would be worth north of $6. 👊

!!This excludes EBITDA improvements in Huon, and prawn EBITDA for Tassal!!

My thought is this is more of an asset play, so better to compare valuations based on salmon assets. Net assets for Tassal is more, and quality is better as 40% of Huon's production is from ocean pens (higher cost farming). PPE ex-prawns is arguably like for like. 🤷

In my biased opinion (disclaimer: super long TGR), I don't think it's unreasonable to think Tassal's salmon assets are worth ~$4. 🐟

What makes it hard to assess is the FCF story, and the investments in prawn CAPEX. 🍤

Tassal has been expanding their prawns at +160% CAGR in volume and operating EBITDA over past 3 years, and on 18 August 2021 are expected to be crowned the #1 supplier in Australia.

Their 10yr strategy is for ~20% CAGR, and will then be around 40% of Tassal's operating EBITDA.

Tassal has invested $175m in recent years to set up this 10yr growth story - they now have the land and ponds, so it should mostly be maintenance CAPEX only.

It's hard to value the prawns, but reasonably it's $1 to $3 based on Huon and Seafarm $SFG comparisons. 🤷

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A further update is expected 18th of August when the annual report drops.

Questions and feedback always welcome. DYOR.

Disclaimer, I'm long TGR.