How much is the fish?

I hope it's damn expensive cause I bought some stocks of The Scottish Salmon Company(SSC) last week. SSC was known as Lighthouse Caledonia prior to the restructuring that took place earlier this year. Lighthouse Caledonia was spun out of Marine Harvest in 2007 due to the demands of the European competition authorities.

A very brief company description:

The Scottish Salmon Company Limited is a company focused on the development of Scottish salmon. The group of companies includes Lighthouse Caledonia and is a fully integrated farmer of Scottish salmon. There are 35 farms located on the Hebrides and West Coast of Scotland, with current potential harvest volume of approximately 24,000 tonnes.

Balance sheet(converted from GBPs to Norwegian crowns using an exchange rate of 9.28)

Assets
Current 621.27 million(includes 355 million worth of "biological assets")
Total 992.49 million

Liabilities
Current 121.47 million
Total 479.77 million

Equity 512.71 million

Market value(18.10.2010) 834.23 million

P/B 1.62 (Market leader Marine Harvest(MHG) 1.68)

H1 2010 results

Revenues 395.04 million
EBITDA 132.61 million
EBIT 129.27 million
EBIT margin 32% (MHG 20%)
Net result 88.25 million
Net margin 22%
EPS 6.96

The company looks very cheap, but is it? The first half of the year was exceptionally good because of the exceptionally high salmon prices. The spot price of Norwegian salmon has been above 30 NOK per kilo since January and above 35 NOK most of the year so far. Last year prices were above 30 NOK for only three months and traded between 27 to 29 NOK most of the year. EBIT per slaughtered kilogram of salmon in H1 was 9.83 NOK for SSC and during the same period the Scottish unit of the worlds largest fish farmer Marine Harvest achieved an EBIT of about 8 NOK per kilo.



Based on past prices and margins SSC will probably achieve on average an EBIT of roughly 6 NOK per kilo over longer periods of time. With an annual slaughter volume of 24 000 000 kilos you get an annual corporate EBIT of 144 million NOK. Using that 144MM P/EBIT= 5.8, EV/EBIT= 7.8
Doesn't look too expensive to me. The company has started to pay a biannual dividend.

Fish diseases are the probably the biggest risk for fish farmers. Marine Harvest has had massive problems with salmon anemia in Chile.

Competition:

Aker Seafoods
Austevoll Seafood
Cermaq
Copeinca
Marine Farms
Marine Harvest