Equity Research Equity Research 11 October 2017

Transcription

1 Equity Research Equity Research 11 October 217 Seafood Nordea Markets - Analysts Kolbjørn Giskeødegård Director, Seafood kolbjorn.giskeodegard@nordea.com Anders Hagen Senior Director anders.hagen@nordea.com Sector top pick Austevoll Seafood (Hold) Wind of change After a long period of negative global supply growth, we now expect positive y/y growth. This has brought salmon prices down 3% from their peak in Q2. As we expect the y/y salmon growth rate to accelerate into Q4 and onwards into 218, we believe prices will remain low. We expect a salmon spot price of NOK 52 per kilo for 218. This is NOK 8 lower than the 217 level, with the decline mainly driven by supply growth. We believe the sector is priced too high and we thus stick to our current negative stance. Austevoll Seafood, our top pick in the sector, is the only name with a Hold rating, amidst a sea of Sells. Supply growth rising from a low level Global supply growth was negative for five consecutive quarters Q1 216 to Q As of Q3 217, we estimate 1% annual growth. The first growth phase (H2 217) is mainly a base effect, with high growth rates from the low 216 base. Our expectation for the second phase (218) is that supply levels in Norway will exceed historical high levels from 215, while Chile will be on a par with its 215 figures. Demand has suffered in need of a restart Farmers have gradually passed high salmon prices on to end-consumers. The new price equilibrium has resulted in a substantial decline in price-sensitive markets and segments, mainly the EU and Russia. For normalised volumes to be absorbed, we believe that prices must come down to offer an incentive to processors and end-consumers to buy more salmon. Salmon prices to dip but still high from a historical context The combination of accelerating supply growth and weaker demand paints a challenging picture. The most efficient way to build new demand is through lower prices. We maintain our EUR 5.8 estimate for spot prices. Based on our EUR/NOK forecast of NOK 9 for 218, this translates into a salmon spot price of NOK 52, up NOK 3 from our previous price estimate. Sector pricing still too high Our estimate for industry costs at NOK 4 per kilo implies margins of NOK 12 per kilo for the industry. Current pricing in the stock market suggests margins of NOK 18-23, depending on which multiples are used. On average we see 15% downside compared to the current pricing in the market. In our view, this justifies keeping our Sell rating on most of the names, but we reiterate our Hold recommendation on Austevoll Seafood, a company that also offers interesting exposure to the protein market (fishmeal and fish oil). Recommendations and valuations Current Upside/ Nordea-18 Cons. -18 Nordea-18 Cons. -18 Nordea -18 Company Rec. TP (Old TP) price downside % P/E P/E EV/ EV/ Divi. yield Austevoll Seafood ASA Hold n.a 1.1 x 8.5 x 8.8 x 6.1 x 4.2% Bakkafrost Sell % 13.2 x 12.7 x 9.5 x 1.3 x 3.7% Grieg Seafood ASA Sell % 11.5 x 9.3 x 9.1 x 8. x 4.1% Leroy Seafood Group ASA Sell % 11.8 x 1.5 x 9.7 x 8.7 x 3.8% Marine Harvest ASA Sell % 16.1 x 12.1 x 12.6 x 9.6 x 3.5% Norway Royal Salmon ASA Sell % 12.8 x 9.6 x 1.3 x 7.7 x 6.8% SalMar ASA Sell % 14.3 x 1.8 x 11.7 x 9.2 x 4.6% Average % 12.8 x 1.5 x 1.2 x 8.5 x 4.4% Source: Eikon and Nordea Markets IMPORTANT INFORMATION AND DISCLOSURES AT THE END OF THIS REPORT Markets

2 Equity Research 11 October 217 Contents Supply growth turning positive 3 Demand side: Salmon is expensive 7 Estimates and valuation 9 Salmon prices 11 Austevoll Seafood: Normalisation for both pelagic and salmon 13 Bakkafrost: Lower costs partly offset negative price effects 17 Grieg Seafood: Sensitive to lower salmon prices 22 Leroy Seafood Group: Focus on operational issues continues 27 Marine Harvest: Normalisation of prices and profits 32 Norway Royal Salmon: Growth is coming finally 37 SalMar: Going offshore 42 Disclaimer and legal disclosures 47 Nordea Markets 2

3 Equity Research 11 October 217 Supply growth turning positive After a long period of negative supply growth, we now see a normalisation in both Norway and Chile from H2 217 and further into 218. We expect Chile to reach the 215 supply level in 218, while Norway should exceed the previous all-time-high levels in the coming years. The biomass buildup in Norway is particularly striking now, a situation which we expect to result in the first Q4 since 214 with no sense of shortage in the market. Global supply turned majorly positive in Q3 217 Supply outlook After five quarters of negative supply growth, the global supply situation turned to major positive supply growth in Q We expect global supply to increase by 4.7% y/y in 217 (1% in Q4) and by another 8% in 218. Supply outlook global (1 tonnes WFE) E 218E 219E 22E Norway 1,198 1,234 1,171 1,26 1,3 1,397 1,479 UK Faroe Islands Ireland Europe 1,463 1,497 1,422 1,477 1,579 1,693 1,785 Annual growth 5.4 % 2% -5% 3.9% 7% 7% 5% Chile Canada USA Australia Others Total Other Annual growth 17% 11% -12% 6% 1% 3% 4% Total global supply 2,224 2,339 2,161 2,258 2,438 2,579 2,74 Supply growth% 9. % 5.1 % -7.6 % 4.5 % 8. % 5.8 % 4.8 % Source: Kontali and Nordea Markets Norway: Biomass buildup at express speed The biomass in Norway was 7% higher y/y as of 31 August 217 and, as illustrated in the following charts, there has been a significant buildup of biomass over the past months. Biomass monthly 75, Change in biomass 5, 45, Biomass (tonnes) 7, 65, 6, 55, Chnage biomass (tonnes) 4, 35, 3, 25, 2, 15, 1, 5, 5, Jan Feb Mar Apr May Jun Jul Aug Sep Jan Feb Mar Apr May Jun Jul Aug Sep Source: Kontali Source: Kontali Nordea Markets 3

4 Equity Research 11 October 217 Increase in feed sales in 9M 217 Feed sales and average sizes up The feed sales during the first nine months of this year were up 5, tonnes compared with the 216 levels for the same period. Using a feed conversion ratio (FCR) of 1.22, this implies that the gross increase in biomass is 4, tonnes. From this, we have to deduct the change in harvesting during the same period, which is slightly lower than in 216. Cumulative change in feed sales and exports January until the end of September 5, 4, 3, Change y/y) in tonnes 2, 1, -1, Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 Week 1 Week 11 Week 12 Week 13 Week 14 Week 15 Week 16 Week 17 Week 18 Week 19 Week 2 Week 21 Week 22 Week 23 Week 24 Week 25 Week 26 Week 27 Week 28 Week 29 Week 3 Week 31 Week 32 Week 33 Week 34 Week 35 Week 36 Week 37 Week 38-2, Cumulative feed sales Cumulative harvesting Source: Kontali and Nordea Markets We assume that the change in exported volumes equals the change in harvesting, although the buildup of frozen inventories might imply that harvesting during the first nine months of 217 was higher than exported volumes. On the other hand, we find it likely that domestic consumption has dropped, as retail sales during the first six months were down by 28% y/y, according to retailer NorgesGruppen. Based on this, we view the estimated change in harvesting figures as fairly accurate as of 3 September 217. We also see another interesting data point reflecting good growth in the sea: increasing harvesting weights. Harvesting weights in Norway (WFE) 5.6 Avr harvesting weight (kg) w 1 w 3 w 5 w 7 w 9 w 11 w 13 w 15 w 17 w 19 w 21 w 23 w 25 w 27 w 29 w 31 w 33 w 35 w 37 w 39 w 41 w 43 w 45 w 47 w 49 w 51 Source: Fish Pool/Kontali Avr Avg. WFE (217) Avg. WFE (216) Average weight now 3g more than a year ago A year ago, the average weight was 4 grams below the ten-year average, while now it is 3 grams higher. Higher harvesting weight means fewer fish taken out of the biomass. It also indicates lower production costs. This is also the basis for our supply growth forecasts in the coming quarters. Nordea Markets 4

5 Equity Research 11 October 217 Norway: Change in supply y/y for E 15% 1% y/y volume changee 5% % -5% -1% Source: Kontali and Nordea Markets Chile: Back to normal in 218, thereafter levelling out While the average weight in Norway dropped during , the development in Chile went the other way. Average harvesting weights in Norway and Chile in Averge harvest weight kg WFE YTD Norway Chile Source: Kontali and AquaBench Higher average weights along with an increase in smolt release to normalise harvesting after the 216 algae bloom are the main reasons for this. Smolt figures started to fall on a y/y basis this June after firm growth during the first five months of 217. Smolt release: Chile 3, Number of fish (1 pcs) 25, 2, 15, 1, 5, - Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Aqua Bench Nordea Markets 5

6 Equity Research 11 October 217 We expect total harvesting to return to around 6, tonnes during 218; thereafter we expect maximum 3% annual growth, in line with the current regulations. We expect Q4 217 to mark the peak in terms of y/y supply growth, but still with solid double-digit growth for H Chile: Change in supply y/y for E 25% 2% 15% 1% 5% % -5% -1% -15% -2% -25% -3% Source: Kontali and Nordea Markets Nordea Markets 6

7 Equity Research 11 October 217 Demand side: Salmon is expensive Retail prices for salmon and other proteins During September 217, we observed the price of salmon and other protein products at representative retail stores in France and Germany. We also observed the prices for various fillet products of salmon, meat (poultry, beef and pork) and other seafood (cod, saithe, tuna, etc). In both countries, our general observation is that salmon products have moved from being priced in the mid-range to the upper end of the protein scale in retail. Retail prices meat (green), salmon (red) and other fish (blue) EUR per kilo Pollock fillet Beef stew siathe fillet Pok ribs biff stew Pork steak Chicken fillet Entrecot saithe fillet Cod fillet frozen Chicken hake fillet Chicken fillet salmon wild fillet frozen nile pearch fillet Tuna cutet Hake cod fillet turkey LR Chicken fillet Thin beef pork fillet cod fillet trout fillet Spain Cod fillet Grill beef cod fillet nile pearch turkey LR Saithe Sea Bass fillet trout fillet french frz salmon filet(5%) Trout fillet small Rump steak Turkey fillet LR Cutlet slamon Trout fillet France wheal fillet Thin beef Salmon fillet 1pc salmon fillet frozen salmon fillet Salmon fillet (Pr.L) salmon fillet Trout fillet France weal Lamb Rump steak Hake fillet salmon fillet cod loin Cod fillet trout fillet bio salmon fillet (Sc) Beef tender bio Salmon fillet LR Salma fillet Source: Nordea Markets In France, compared to when we performed the same exercise in January 217, September showed fewer items on sale (campaign) and substantially higher prices for frozen salmon. In Germany, we observed items from the five main retailers and the pattern was basically the same as in France. Salmon prices in Germany EUR per kilo pig fillets Pollock Pollock Pollock Pollock Pollock Pig cutlet Pig cutlet Mackerel whole Tilapia frozen 5 kg Pollock frozen Trout frozen Chicken fillet Chicken fillet Chicken fillet Pig fillet Chicken fillet Turkey fillets Chicken fillets Pig cutlet Pig cutlets Spare ribs Turkey fillet Turkey fillet Turkey fillet Turkey fillet Cod fillet frozen Pig meat steak Hake frz 5 kg Wild salmon fil Wild salmon fil pig filllet Hake frozen Saithe fillet Chicken fillets Cod fillet frz Trout fillet frz Thin beef Redfish fillet frz Pollock breaded Pollock fresh Cod loins frz Entrecote Ox steak Wild salmon fil frz Cod fillet fresh Mackrel fillet Ox steak rinder Tenderloin ox frz Peppersteak Natural salmon Natural salmon Salmon fillets Rump steak Veal Fillets Cod fillets salmon fillet frz Veal Fillets Cod loin salmon fillet frz PL salmon fillet salmon fillet frz Rump steak Salmon fillet frz salmon fillet frz Ribeye salmon wild fillet Lamb fillet Barbecue salmon Tuna fillet Salmon fillets Roast beef Salmon fillet Salmon fil frz Tiger prawns frz Salmon fil frz,75kg Bio salmon fillet Grill steak ox Cod fillet frz Cod loin Lamb fillet Tenderloin Tenderloin Wild salm frz Salmon fillet Salma loin Salmon fillet frz Source: Nordea Markets Nordea Markets 7

8 Equity Research 11 October 217 Salmon and cod YTD 215 YTD 216 YTD 217 Salmon fillets Cod fillets Price difference Price difference % 3 % 15 % 3 % Source: Kontali and Nordea Markets Salmon prices surpassing cod in France Salmon prices at French retail stores are up by EUR 5.2 per kilo YTD in 217, compared with the same period in 215. Cod prices are also up, but only by EUR ~1.2 per kilo. Salmon and cod prices: EUR per kilo Fresh fish counter. YTD 215 YTD 216 YTD 217 Salmon fillets Cod fillets Source: Kontali and Nordea Markets For the end-consumer, cod is a substantially cheaper alternative. For the retailer, the relatively low price on cod (as a raw material) is favourable for gross margins. While cod prices are still below NOK 3 per kilo, average salmon prices in first nine months of 217 have been NOK 63 per kilo. Hence, there are substantially greater enticements for running sales campaigns on cod rather than the lower-margin salmon. Source: Nordea Markets Our observations in retail stores at the beginning of September were consistent with this; we saw campaigns mainly for whitefish and shrimp. If red fish were involved in campaigns, it was typically local trout farmed in France or Spain. Nordea Markets 8

9 Equity Research 11 October 217 Estimates and valuation The price correction we are seeing at the moment is more of a structural one, rather than a seasonal adjustment to a more normal level. The main reason for this is a substantial change in supply, going from negative to positive growth rates. The currency markets still expect a weak NOK, and based on market consensus we now use a EUR/NOK rate of 9 (previously 8.5), thereby adding NOK 3 to our expected 218/19 salmon price forecast. Our new 218/19 price estimate of NOK 52 per kilo is still NOK 5 below consensus and hence leaves us 15% below consensus on our 218 estimates. We consequently maintain our negative stance to the sector. We are still substantially below consensus on our 218 estimates Our estimates are still below consensus Our 218 estimates are still key for the valuations of most of the companies covered in this report. Even with a higher 218 salmon prices estimate, we are 14% lower than consensus on EV/ and 17% lower on P/E. We thus see a risk of negative estimate revisions. Nordea estimates vs consensus EV/ P/E Company 218E consensus 218E Nordea Difference 218E consensus 218E Nordea Difference MHG 9.6 x 12.6 x -24% 12.1 x 16.1 x -25% LSG 8.7 x 9.7 x -11% 1.5 x 11.8 x -11% SALM 9.2 x 11.7 x -21% 1.8 x 14.3 x -25% BAKKA 1.3 x 9.5 x 8% 13.2 x 12.7 x 4% GSF 8. x 9.1 x -13% 9.3 x 11.5 x -19% NRS 7.7 x 1.3 x -25% 9.6 x 12.8 x -25% Average 8.9 x 1.5 x -14% 1.9 x 13.2 x -17% Source: Bloomberg and Nordea Markets Pricing EV/kilo The current pricing leaves the sector (companies we cover) with an average EV/kilo of NOK 2 per kilo: EV/kilo EV (NOK)/kilo GSF LSG SALM MHG NRS BAKKA EV/kg 217E Average Source: Nordea Markets based on Eikon data Depending on which EV/ multiples are applied, and given the current estimated cost level of NOK 4 per kilo (Norway industry average), this gives the following "normal salmon price" implied by the current sector pricing. Nordea Markets 9

10 Equity Research 11 October 217 Prices and margins priced into the current EV/kilo EV/ target EV/Kilo per 1/1/ Normal margin (NOK /kg) Cost Normal price (NOK/kg) Source: Nordea Markets On consensus estimates, the current EV/ sector pricing for 218E is 8.1x, meaning that an implicit salmon price of NOK 65 per kilo is built into the average pricing in the sector. This is higher than ever and in our view fairly optimistic. EV/ pricing EV/ MHG 12.2 x 19.9 x 11.5 x 1.5 x 9.7 x 9.1 x LSG 9.2 x 16.5 x 1.7 x 7.9 x 7.7 x 7.1 x SALM 8.9 x 13.5 x 11.6 x 9. x 8.3 x 7.6 x BAKKA 8. x 1.7 x 11.6 x 1.6 x 8.9 x 8.2 x GSF 14.9 x n.a 7.7 x 8.6 x 6.9 x 5.8 x NRS 22.5 x 22.3 x 13.1 x 8.3 x 7.3 x 6.8 x Average 12.6 x 16.6 x 11. x 9.1 x 8.1 x 7.4 x Source: Eikon However, even higher EV/ pricing, such as that seen in , leaves us with "normalised " salmon prices in the range of NOK per kilo, which is also at the very high end of a price range. Volume guidance still too high Volume guidance from the companies has, on average, been 6% too high in (Norwegian operations). If the companies meet their full-year guidance as guided per Q2 217, the Q4 harvesting for the Norwegian companies will be as follows: Q4: Actual harvesting and forecast for 217, tonnes Company Q4-15 Q4-16 Q4-17 guided Change Q4-17 Change Q4 % MHG 66,6 64, 69, 5, 8 % LSG 41,7 39,143 5, 1,8 28 % Salmar 38,1 26,5 35,7 9,25 35 % Grieg 15,3 15,1 17, 2, 18 % NRS 8,25 4,7 12,6 7,9 168 % Top 5 169,95 149, ,3 34,95 26 % Total industry 31, 289,53 318, 28,47 1 % Top 5 share % 54.8% 51.6% 58.% While we expect "only" 1% growth for the entire industry, the top-five guidance points towards a 26% increase. This is yet another indicator that the current volume guidance in general is still too high and that there will be further cuts in the Q3 reports coming up in a few weeks' time. Nordea Markets 1

11 Equity Research 11 October 217 Salmon prices We expect salmon prices to be considerably lower than the levels seen in 216 and H Our salmon price estimate remains at EUR 5.8 per kilo (back-to-farm), while we increase the NOK-based reference price to NOK 52 (from NOK 49), owing to a weaker market consensus NOK estimate versus the EUR. In a historical context, we still expect salmon prices at the high end of the range. Salmon prices have left their peak... Prices from Norway expected to be down 15% in Q4 After being at exceptionally high levels over the past two years, salmon prices have now come down to the NOK 5 level. Salmon prices NOK pr kg Source: Fish Pool Week Range Cost but still at all-time highs in seasonal terms Looking at seasonal patterns, current prices (seasonal adjusted) remain at all-time highs. We still expect spot prices to be at the top of the range; we nonetheless forecast an average price of NOK 56 compared with NOK 66 in Q4 216 (15% lower) prices should remain high, but below levels From an historical context, we still expect salmon prices to range high for the coming nine quarters, but substantially lower than the elevated and abnormal price levels. Quarterly salmon prices for E NOK per kilo (back to farm) Source: Fish Pool and Nordea Markets (estimates from Q4 217) We show annual prices in NOK and EUR per kilo in the following table, representing back-to-farm prices: Nordea Markets 11

12 Equity Research 11 October 217 Salmon prices annually in E, NOK and EUR Year Price NOK/kg EURNOK Price EUR/kg E E E Sources: Fish Pool (214-16), Nordea Markets (217E-19E) and Bloomberg on EURNOK There are several different salmon prices to quote and the prices above are not equal to the referred Nasdaq prices, which are in turn different from import prices (including freight and customs). We show the bridge from back-to-farm prices for in NOK to DDP (delivered, duty paid) prices in NOK and EUR in the following table. Salmon prices Year Back to farm Transport FOB Oslo Exporter Nasdaq price Freight, duty Price DDP NOK Price DDP EUR 218E E Source: Nordea Markets Salmon prices for Chilean salmon The prices for Chilean salmon fillets exploded after the 216 algae bloom, which took out an estimated 2% of the Chilean biomass 'overnight'. Prices on Chilean D-trim fillets US market USD/kg Source: Kontali and Urner Barry A more normal supply situation as from May 217, combined with a good season for wild salmon, has taken the salmon prices down considerably over the past months. However, we do not expect to see prices returning to the extremely low 215 levels. The current price level of USD 11 per kilo fillets represents USD 6.6 per kilo HOG salmon, which is NOK 53 and fairly close to our NOK 52 estimate for European prices. We hence expect the USD 11 per kilo level to represent a fair expectation for the average 218 price level. Nordea Markets 12

13 Equity Research Equity Research 11 October 217 Austevoll Seafood Industry (GICS): Food Products Sector (Nordea): Seafood Hold Target price: n.a on Hold Fair value: NOK 86 Key info Country Bloomberg Reuters Free Float Share price (close): Market cap. (bn) Company website Next report date Norway AUSS NO AUSS.OL 45% NOK EUR 1.86/NOK Nov 217 Nordea Markets - Analysts Kolbjørn Giskeødegård Director, Sector Coordinator kolbjorn.giskeodegard@nordea.com Anders Espedal Hagen Senior Director anders.hagen@nordea.com Absolute and relative performance (1Y) Absolute Relative Austevoll Seafood Dec 16 Apr 17 Aug 17 Oslo Exchange All share (Rebased) Source: Thomson Reuters -1M 5.2% -.5% Source: Thomson Reuters -6M 32.9% 17.5% YTD 2.4% -9.6% Normalisation for both pelagic and salmon For the second season of 217, we expect to see improving fishing quotas in Peru after several weak years caused by El Niño and similar unfavourable oceanographic conditions. Our 217 base case assumes fishing capacity of five million tonnes, which is significantly higher than the level from 216. Lower sales prices on fishmeal and fish oil are offset by higher volumes and lower production costs. The situation for pelagic fisheries in the North Atlantic is also favourable, with a substantial increase in herring and blue whiting quotas for 217. Ahead of the Q3 report, we reiterate our Hold rating with a DCF-based fair value of NOK 86 per share. A good quarter for core operations Fishmeal and fish oil production based on the anchovy catch in Peru has improved, with H1 217 quotas rising from.9 million tonnes in 216 to 2.8 million tonnes in 217. Even though the company did not fully fish its quota (85% utilisation), it delivered a strong set of numbers driven by the higher volumes. As a result, the pelagic operations accounted for 31% of group in Q2, compared with 16% in Q The rest is mainly a contribution from the salmon segment (Lerøy). Salmon reaching the top of the cycle In its Q2 report, the company kept its salmon harvesting outlook for H2 217 intact and also expected harvesting, both in Norway and globally, to pick up significantly versus H We expect margin pressure in the coming quarters owing to lower price forecasts. Reiterating Hold recommendation Ahead of the Q3 report, we maintain our Hold recommendation with a DCF-based fair value of NOK 86 per share. Estimate changes Year 217E 218E Total revenue % 4% (adj.) % 12% PTP (adj.) % 14% EPS (adj.) % 13% 219E 3% 18% 21% 18% Quarterly results and estimates Q1 16 Q2 16 Total revenue 4,412 4, PTP Net profit EPS Q3 16 4, Q4 16 5,33 1,145 2,565 2, Q1 17 6,75 1, Q2 17 5,19 1,322 1,792 1, Q3 17E 6,59 1,271 1,38 1, Q4 17E 6,163 1,342 1,19 1, Full-year results and estimates 216 Total revenue 18,911 (adj.) 3,881 - margin 2.5% (adj.) 4,463 - margin 23.6% Pre-tax profit (adj.) 4,683 Net profit from cont oper (adj) 3,79 Shareholders' equity 9,248 Net debt 5,459 Net gearing 3% Net debt/ 1.4 Free cash flow before A&D 1,793 No. of shares (m) E 23,316 5, % 4, % 4,428 3,388 1,577 4,96 2%.7 4, E 23,343 4, % 3, % 4,5 3,3 11,557 3,789 16%.8 2, E 24,237 4, % 3, % 4,223 3,167 12,757 3,527 14%.7 2, Per share data and multiples NOK 216 EPS (adj.) growth 128% DPS (ord.) 2.5 BVPS 45.6 P/E (adj.) 1.3 EV/Sales 1.7 EV/ (adj.) 8.1 EV/ (adj.) 7. P/BV 1.8 Div. Yield (ord.) 3.% FCF Yield 1.% ROE after tax 18.5% ROIC after tax 14.2% 217E 8.9 1% % 21.1% 18.2% 11.4% 218E % % 16.7% 15.5% 9.3% 219E % % 14.5% 13.1% 9.2% IMPORTANT INFORMATION AND DISCLOSURES AT THE END OF THIS REPORT Markets

14 Equity Research 11 October 217 Reported numbers and forecasts Balance sheet Intangible assets of which R&D of which other intangibles of which goodwill Tangible assets Shares associates Interest bearing assets Deferred tax assets Other non-ib non-current assets Other non-current assets Total non-current assets Inventory Accounts receivable Other current assets Cash and bank Total current assets Assets held for sale Total assets 29 5,599 3,45 2,15 3, ,14 2,697 1, ,624 6,151 16, ,25 3,875 2,15 3, ,959 3,465 1, ,811 8,84 19, ,83 3,933 2,15 3,98 1, ,315 3,285 1, ,383 7,259 18, ,164 4,14 2,15 4,146 1, ,556 3,478 1, ,181 7,42 18, ,36 3,886 2,15 4,96 1, ,277 4,468 1,75 2,379 1,396 9,948 21, ,481 5,331 2,15 4,949 1, ,94 4,722 1, ,198 9,25 23, ,162 6,12 2,15 5,531 1, ,554 5,54 1, ,47 1,286 25, ,747 9,597 2,15 6,691 1, ,33 7,879 2, ,745 14,699 35,1 217E 11,727 9,577 2,15 7,952 1, ,738 7,5 2, ,44 15,171 36,98 218E 11,727 9,577 2,15 9,94 1, ,726 7,51 2, ,912 14,693 38, E 11,727 9,577 2,15 11,929 1, ,715 7,943 2, ,374 14,777 4,492 Shareholders equity Of which preferred stocks Of which equity part of hybrid debt Minority interest Total Equity Deferred tax Long term interest bearing debt Pension provisions Other long-term provisions Other long-term liabilities Convertible debt Shareholder debt Hybrid debt Total non-current liabilities Short-term provisions Accounts payable Other current liabilities Short term interest bearing debt Total current liabilities Liabilities for assets held for sale Total liabilities and equity 5,46 1,635 7,95 1,757 4, , ,26 2,873 16,291 6,497 2,614 9,111 1,987 4, , ,36 1,154 3,31 19,42 6,483 2,514 8,997 1,814 4, , ,154 1,427 3,424 18,574 6,446 2,67 9,117 1,917 4, , ,566 3,42 18,958 7,79 3,377 1,456 2,91 4, ,97 1,18 1,228 1,264 3,671 21,224 7,916 4,39 11,955 2,47 4, ,388 1,173 1,466 1,363 4,1 23,344 8,59 4,575 13,165 2,778 5, ,285 1,4 2,38 1,78 4,391 25,84 9,248 8,965 18,213 3,986 7, ,231 1,5 1,918 2,139 5,557 35,1 1,577 1,124 2,7 3,992 7, ,765 1,795 1, ,443 36,98 11,557 11,416 22,973 3,992 6, ,965 1,833 1, ,482 38,419 12,757 12,995 25,751 3,992 6, ,165 1,927 1, ,576 4,492 Balance sheet and debt metrics Net debt 4,91 Working capital 2,861 Invested capital 13,1 Capital employed 13,419 ROE 14.3% ROIC 8.4% ROCE 11.2% Net debt/ 2. Interest coverage 5.4 Equity ratio 33.5% Net gearing 57.7% 3,21 3,396 14,355 16,11 2.5% 12.7% 14.3% % 35.2% 3,33 2,879 14,194 15,15 5.9% 4.9% 6.% % 37.% 3,825 3,368 14,924 15, % 5.3% 6.6% % 42.% 4,818 6,144 17,42 17, % 11.3% 13.7% % 46.1% 3,96 4,414 18,58 19, % 6.2% 7.6% % 33.1% 3,931 4,54 2,58 21,45 8.7% 6.4% 7.6% % 29.9% 5,459 7,535 27,838 29, % 14.2% 15.2% % 3.% 4,96 7,21 28,939 32, % 11.4% 13.1% % 19.8% 3,789 7,177 3,94 33, % 9.3% 1.8% % 16.5% 3,527 7,75 33,42 35, % 9.2% 1.8% % 13.7% Nordea Markets 14

15 Equity Research 11 October 217 Income statement Net revenue Revenue growth of which organic of which FX Depreciation and impairments PPE A Amortisation and impairments of which associates Associates excluded from Net financials Pre-tax profit Reported taxes Net profit from continued operations Discontinued operations Minority interests Net profit to equity EPS DPS of which ordinary of which extraordinary Profit margin in percent A Adjusted earnings (adj.) A (adj.) (adj.) EPS (adj.) Adjusted profit margins in percent (adj.) A (adj.) (adj.) Performance metrics CAGR last 5 years Net revenue EPS DPS Average margin Average margin 29 11, % 2, , , , % 13.8% 13.3% 2,43 1,564 1, % 13.8% 13.3% 12.9% 13.% 21 12, % 3, , , , , , % 2.3% 17.9% 3,138 2,581 2, % 2.3% 17.9% 14.7% 16.9% , % % 2.4% 7.5% % 2.4% 7.5% 48.1% 52.4% 53.9% -6.4% 12.7% 14.4% , % 1, , , % 11.1% 8.6% 1,893 1,316 1, % 11.1% 8.6% 34.9% 21.2% 19.1% -5.4% 12.1% 15.6% , % 3, , , , , % 23.4% 17.8% 3,835 3,171 2, % 23.4% 17.8% 27.8% 91.5% 29.7% 7.3% 38.1% 13.2% 19.% , % 1, , , , , % 7.6% 1.3% 1,757 1,96 1, % 7.6% 1.3% 27.1% 75.8% 32.2% 45.1% 12.5% 17.7% ,27 6.5% 2, , , , , % 9.1% 1.7% 2,244 1,386 1, % 9.1% 1.7% 4.8% -3.% -.4% -6.% 11.1% 15.7% , % 3, ,913 1,55 4, , ,79-2,63 1, % 15.4% 23.6% 3,881 2,913 4, % 15.4% 23.6% 3.7% -6.5% -6.5% -1.% 14.9% 18.4% 217E 23, % 5, , , ,428-1,4 3,388-1,584 1, % 19.6% 18.2% 5,48 4,568 4, % 19.6% 18.2% 9.2% 36.7% 37.4% 33.8% 2.1% 16.7% 2.1% 218E 23,343.1% 4, ,674 3, ,5-1,1 3,3-1,292 1, % 15.7% 15.7% 4,65 3,674 3, % 15.7% 15.7% 14.5% 23.7% 33.% 32.6% 16.3% 16.3% 18.9% 219E 24, % 4, ,892 3, ,223-1,56 3,167-1,579 1, % 16.1% 16.1% 4,823 3,892 3, % 16.1% 16.1% 11.5% 3.7% 8.8% 11.9% 24.6% 17.% 2.% Valuation ratios - adjusted earnings 29 P/E (adj.) 9.7 EV/ (adj.) 6.4 EV/A (adj.) 8.3 EV/ (adj.) 8.7 Valuation ratios/reported earnings P/E 9.7 EV/Sales 1.2 EV/ 6.4 EV/A 8.3 EV/ 8.7 Dividend yield (ord.).% FCF yield 21.2% Payout ratio.% % 12.6%.% % 1.9% 52.7% % -2.3% 69.% % -9.6% 25.% % 13.4% 73.% % 12.3% 196.6% % 1.% 3.8% 217E % 21.1% 35.9% 218E % 16.7% 42.8% 219E % 14.5% 3.2% Nordea Markets 15

16 Equity Research 11 October 217 Cash flow statement 29 (adj.) for associates 2,43 Paid taxes -91 Net financials -115 Change in provisions -6 Change in other LT non-ib 12 Cash flow to/from associates 51 Dividends paid to minorities Other adj. to reconcile to cash flow -43 Funds from operations (FFO) 1,571 Change in NWC -68 Cash flow from operations (CFO) 1,53 Capital expenditure -389 Free cash flow before A&D 1,114 Proceeds from sale of assets 521 Acquisitions -81 Free cash flow 1,553 Dividends paid -56 Equity issues / buybacks 633 Net change in debt -1,151 Other financing adjustments Other non-cash adjustments Change in cash 98 Cash flow metrics Capex/D&A 72.2% Capex/Sales -3.4% Key information Share price year end (/current) 36 Market cap. 7,318 Enterprise value 13,45 Diluted no. of shares, year-end (m) , , , , , , % -3.6% 5 1,55 15, ,153 1, % -6.1% 21 4,257 1, , % -6.2% 29 5,777 12, , ,993-2, % -7.1% 36 7,196 15, , , , ,249 1,418-1,44 1, % -6.9% 47 9,426 17, , , ,22-1,83 1, ,342-1, % -7.1% 54 1,947 19, , ,34 3, ,936-1,142 1,793 1,815-3, , ,5 1, % -6.% 84 16,978 31, E 5,48-1, , ,188-1,97 4, , , % -4.7% 86 17,383 31, E 4,65-1, , ,958-1,58 2,91 2, , % -4.5% 86 17,383 32, E 4,823-1, , ,57-1,58 2,513 2, , % -4.4% 86 17,383 33, Nordea Markets 16

17 Equity Research Equity Research 11 October 217 Bakkafrost Industry (GICS): Food Products Sector (Nordea): Seafood Sell Target price: NOK 325. Fair value: NOK 324 Key info Country Bloomberg Reuters Free Float Share price (close): Market cap. (bn) Company website Next report date Norway BAKKA NO BAKKA.OL 9% NOK DKK 14.98/NOK Nov 217 Nordea Markets - Analysts Kolbjørn Giskeødegård Director, Sector Coordinator kolbjorn.giskeodegard@nordea.com Anders Espedal Hagen Senior Director anders.hagen@nordea.com Absolute and relative performance (1Y) Bakkafrost Absolute Relative Dec 16 Apr 17 Aug 17 Oslo Exchange All share (Rebased) Source: Thomson Reuters -1M 4.2% -1.5% Source: Thomson Reuters -6M 45.4% 28.5% YTD 12.5% -.7% Lower costs partly offset negative price effects Bakkafrost has a 4-5% share of marine raw materials in its feed recipes compared with the main peers' 15-25%. Prices of marine ingredients have dropped substantially over the past 12 months and we expect the full-year positive cost effect to be NOK 3 per kilo for 218. Further cost savings of NOK 1-2 per kilo will come from the new processing plant. We expect a NOK 1 lower salmon spot price to be negative for the company, although an estimated 4% fixed-price contract share will partly mitigate this for 218. We expect the company to release its first 218 volume guidance in the upcoming report. Based on the 217 smolt release profile, we anticipate an increase in volumes to 57, tonnes (from 53,5 tonnes). Based on our current DCF valuation, we raise our target price to NOK 325 (31) and reiterate our Sell recommendation. Operational challenges at the new plant During the summer, the new processing facility had to close for extraordinary disinfection due to an occurrence of listeria in production. Our impression is that the company has had fewer challenges in recent months and that it can gradually start to take out the synergies from closing seven factories. The annual estimated cost savings of DKK 7-9m (NOK 11-12m) correspond to NOK 2 per kilo. Sell reiterated after strong share price performance Despite the substantial negative salmon price correction in the past one to two months, the share price has rallied. The current share price implies an EV/kilo of close to NOK 3, suggesting the current earnings level is the new normal. We find this too optimistic and still see downside in the share. Consequently, we maintain our Sell recommendation and raise our DCFbased target price to NOK 325 (31). Estimate changes Year 217E 218E Total revenue 5% 2% (adj.) 4% % PTP (adj.) 4% -2% EPS (adj.) 4% -2% 219E -1% -1% -1% -1% Quarterly results and estimates DKKm Q1 16 Q2 16 Total revenue PTP Net profit EPS Q Q Q Q2 17 1, Q3 17E Q4 17E Full-year results and estimates DKKm 216 Total revenue 3,23 (adj.) 1,313 - margin 41.% (adj.) 1,165 - margin 36.4% Pre-tax profit (adj.) 1,124 Net profit from cont oper (adj) 83 Shareholders' equity 3,549 Net debt 592 Net gearing 17% Net debt/.5 Free cash flow before A&D 141 No. of shares (m) E 3,59 1, % 1, % 1,324 1,88 4, % E 3,58 1, % 1, % 1,52 1,141 4, % E 3,24 1, % 1, % 1,547 1,176 4, % Per share data and multiples DKK 216 EPS (adj.) growth -4% DPS (ord.) 8.2 BVPS 72.6 P/E (adj.) 16.5 EV/Sales 4.5 EV/ (adj.) 1.9 EV/ (adj.) 12.4 P/BV 3.9 Div. Yield (ord.) 2.9% FCF Yield.6% ROE after tax 43.7% ROIC after tax 2.9% 217E % % 2.6% 23.5% 2.% 218E % % 5.5% 26.5% 21.3% 219E % % 6.6% 24.6% 2.6% IMPORTANT INFORMATION AND DISCLOSURES AT THE END OF THIS REPORT Markets

18 Equity Research 11 October 217 Detailed estimates Results and estimates per segment Base case (DKKm) Q1 217 Q2 217 Q3 217E Q4 217E Sales , margin 46% 42% 37% 47% margin 12% 41% 31% 41% Pre-tax profit Net profit Adj EPS Farming (DKKm) Q1 217 Q2 217 Q3 217E Q4 217E Operating revenues 75. 1, pre IFRS DKK per kg margin 49.1% 52.4% 46.% 5.3% Volume (gwe) 13,158 18,42 11,6 12, VAP DKKm Q1 217 Q2 217 Q3 217E Q4 217E VAP volumes 3,636 5,273 6,728 6,96 Share 28.% 29.% 58.% 58.% VAP contribution VAP contribution DKK per kg Fish oil, -meal and feed DKKm Q1 217 Q2 217 Q3 217E Q4 217E Sales margin 16.3% 15.% 18.% 15.% Feed volume (tonnes) 19,827 17,32 29,7 34,4 Nordea Markets 18

19 Equity Research 11 October 217 Reported numbers and forecasts Balance sheet DKKm Intangible assets of which R&D of which other intangibles of which goodwill Tangible assets Shares associates Interest bearing assets Deferred tax assets Other non-ib non-current assets Other non-current assets Total non-current assets Inventory Accounts receivable Other current assets Cash and bank Total current assets Assets held for sale Total assets , , ,67 2, , ,373 2, ,328 1, ,784 3, , ,463 1, , 3, , ,957 1, ,963 3, , ,567 2, ,851 5, E , ,4 2, ,897 5,91 218E , ,158 2, ,416 6, E , ,355 2, ,525 6,88 Shareholders equity Of which preferred stocks Of which equity part of hybrid debt Minority interest Total Equity Deferred tax Long term interest bearing debt Pension provisions Other long-term provisions Other long-term liabilities Convertible debt Shareholder debt Hybrid debt Total non-current liabilities Short-term provisions Accounts payable Other current liabilities Short term interest bearing debt Total current liabilities Liabilities for assets held for sale Total liabilities and equity ,185 1, , ,32 1,263 1, ,571 1,665 1, , ,112 2,64 2, , ,463 2,58 2, ,92 3,549 3, , ,418 4,9 4, , ,91 4,618 4, , ,574 4,938 4, ,295 6,88 Balance sheet and debt metrics Net debt 97 Working capital 285 Invested capital 543 Capital employed 48 ROE 48.1% ROIC 26.% ROCE 4.1% Net debt/.5 Interest coverage 14.9 Equity ratio 62.6% Net gearing 25.% ,93 1,6 4.2% 22.7% 29.8% % 7.8% ,134 2, % 15.6% 19.5% % 77.% 87 1,131 2,328 2, % 1.9% 15.2% % 63.9% 63 1,326 2,654 2, % 17.7% 25.6% % 36.2% 2 1,457 2,92 3,1 34.7% 22.4% 28.8% % 9.7% 346 1,63 3,56 3, % 22.8% 26.5% % 13.4% 592 2,221 4,788 5, % 2.9% 33.3% % 16.7% 639 2,292 5,295 5, % 2.% 22.2% % 15.9% 351 2,458 5,616 6, % 21.3% 25.5% % 7.6% 224 2,455 5,89 5, % 2.6% 28.2% % 4.5% Nordea Markets 19

20 Equity Research 11 October 217 Income statement DKKm Net revenue Revenue growth of which organic of which FX Depreciation and impairments PPE A Amortisation and impairments of which associates Associates excluded from Net financials Pre-tax profit Reported taxes Net profit from continued operations Discontinued operations Minority interests Net profit to equity EPS DPS of which ordinary of which extraordinary Profit margin in percent A Adjusted earnings (adj.) A (adj.) (adj.) EPS (adj.) Adjusted profit margins in percent (adj.) A (adj.) (adj.) Performance metrics CAGR last 5 years Net revenue EPS DPS Average margin Average margin % % 26.6% 32.3% % 26.6% 26.6% % % 3.2% 38.5% % 3.2% 3.2% 211 1, % % 25.2% 3.3% % 25.2% 25.3% 3.4% 3.8% 212 1, % % 17.1% 18.5% % 17.1% 17.4% 26.5% 27.2% 213 2, % % 24.5% 28.2% % 24.5% 23.6% 51.9% 38.7% 52.6% 89.5% 27.6% 27.7% 214 2, % % 31.% 33.3% % 31.% 31.1% 46.8% 53.9% 62.5% 12.5% 28.9% 29.6% 215 2,85 6.2% 1, , % 35.3% 32.6% 1,115 1, % 35.3% 34.6% 35.1% 39.% 35.9% 55.8% 29.2% 31.6% 216 3, % 1, , , , ,339 1, % 36.8% 52.3% 1,313 1,18 1, % 36.8% 36.4% 28.3% 31.% 24.1% 37.1% 34.7% 34.% 217E 3, % 1, , , , % 37.4% 31.8% 1,537 1,342 1, % 37.4% 37.4% 19.4% 26.8% 33.1% 32.7% 16.% 36.% 37.7% 218E 3,58-2.3% 1, ,55 1, , ,141 1, % 44.2% 44.2% 1,756 1,55 1, % 44.2% 44.2% 14.1% 31.1% 27.2% 25.9% 39.1% 42.% 219E 3,24-7.6% 1, ,573 1, , ,176 1, % 48.5% 48.5% 1,786 1,573 1, % 48.5% 48.5% 7.1% 2.3% 17.2% 14.3% 4.6% 41.9% 45.8% Valuation ratios - adjusted earnings DKKm 29 P/E (adj.) EV/ (adj.) EV/A (adj.) EV/ (adj.) Valuation ratios/reported earnings P/E EV/Sales EV/ EV/A EV/ Dividend yield (ord.) FCF yield Payout ratio.% % 5.%.% % -52.6% 58.7% % 3.9%.% % 6.9% 16.6% % 8.9% 33.7% % 1.4% 35.9% %.6% 29.9% 217E % 2.6% 47.7% 218E % 5.5% 46.7% 219E % 6.6% 72.8% Nordea Markets 2

21 Equity Research 11 October 217 Cash flow statement DKKm 29 (adj.) for associates 179 Paid taxes Net financials -11 Change in provisions Change in other LT non-ib Cash flow to/from associates Dividends paid to minorities Other adj. to reconcile to cash flow Funds from operations (FFO) 168 Change in NWC 9 Cash flow from operations (CFO) 178 Capital expenditure -21 Free cash flow before A&D 156 Proceeds from sale of assets 7 Acquisitions -12 Free cash flow 151 Dividends paid -5 Equity issues / buybacks Net change in debt -111 Other financing adjustments Other non-cash adjustments Change in cash 35 Cash flow metrics Capex/D&A % Capex/Sales -3.6% Key information Share price year end (/current) Market cap. Enterprise value Diluted no. of shares, year-end (m) , , %17,95.% -8.3% -7.4% ,35 1,716 2,349 2, % -5,172.7% -6.2% -8.% ,986 4,124 3,74 4, % -8.6% 138 6,759 6, , % -21.3% 23 9,911 1, , , % -21.4% ,717 14, E 1, ,92-7 1, % -17.7% 37 14,899 15, E 1, , , % -1.3% 37 14,899 15, E 1, , , % -12.7% 37 14,899 15, Nordea Markets 21

22 Equity Research Equity Research 11 October 217 Grieg Seafood Industry (GICS): Food Products Sector (Nordea): Seafood Sell Target price: NOK 65. Fair value: NOK 66 Key info Country Bloomberg Reuters Free Float Share price (close): Market cap. (bn) Company website Next report date Norway GSF NO GSFO.OL 45% NOK 8.2 EUR.96/NOK Nov 217 Nordea Markets - Analysts Kolbjørn Giskeødegård Director, Sector Coordinator kolbjorn.giskeodegard@nordea.com Anders Espedal Hagen Senior Director anders.hagen@nordea.com Absolute and relative performance (1Y) Absolute Relative Grieg Seafood Dec 16 Apr 17 Aug 17 Oslo Exchange All share (Rebased) Source: Thomson Reuters -1M 2.1% -3.5% Source: Thomson Reuters -6M YTD 26.4% -1.8% 11.7% -13.4% Sensitive to lower salmon prices The salmon super-cycle over the past two years has benefited Grieg Seafood as well as the rest of the industry. In Q3 217, supply growth turned from negative to positive. We expect the focus of the Q3 presentation to be on biology and cost developments, especially in the UK. We expect the achieved salmon price to drop by NOK 1 per kilo and to have a negative impact on for 218E. Based on our SOTP valuation, we increase our target price to NOK 65 (55) and reiterate our Sell recommendation. Planning for growth, but with lower prices In its Q2 presentation, Grieg's volume guidance for Norway was unchanged for H2 217, although it cut its UK guidance by 3, tonnes, bringing fullyear volume guidance down to 67, tonnes. As its presence far north and far south is favourable with regards to biology and cost development, we see a low risk of further cuts to volume guidance. Expansion into more sea lice trouble? Grieg plans to increase harvesting for substantially and now guides for a 28% increase in smolt release for 217. We now see strong volume growth in Finnmark for the coming years. The key question is whether this could be a trigger for a negative biological development such as we have seen in Central Norway. In that case, costs would also increase. Reiterating our Sell rating We view the current strong cash flow in the sector as representing peak levels and expect more normalised cash flow in the coming years, driven by lower prices. Grieg is vulnerable owing to its high cost base, so it is vital to bring this down this is also a key objective of higher volumes. For now, we increase our SOTP-based target price to NOK 65 (55) and reiterate our Sell rating. Estimate changes Year 217E 218E Total revenue 2% 5% (adj.) 7% 2% PTP (adj.) 11% 26% EPS (adj.) 12% 26% 219E 5% 32% 43% 43% Quarterly results and estimates Q1 16 Q2 16 Total revenue 1,266 1, PTP Net profit EPS Q3 16 1, Q4 16 2, Q1 17 1, Q2 17 2, Q3 17E 1, Q4 17E 2, Full-year results and estimates 216 Total revenue 6,552 (adj.) 1,342 - margin 2.5% (adj.) 1,683 - margin 25.7% Pre-tax profit (adj.) 1,521 Net profit from cont oper (adj) 1,179 Shareholders' equity 3,148 Net debt 887 Net gearing 28% Net debt/.7 Free cash flow before A&D 631 No. of shares (m) E 6,933 1, % % ,276 1,476 45% E 5,519 1, % 1, % 1, ,663 1,84 29%.8 1, E 7,648 1, % 1, % 1, , % Per share data and multiples NOK 216 EPS (adj.) growth 21,214% DPS (ord.) 3. BVPS 28.2 P/E (adj.) 7.9 EV/Sales 1.5 EV/ (adj.) 7.5 EV/ (adj.) 6. P/BV 2.9 Div. Yield (ord.) 3.7% FCF Yield 6.9% ROE after tax 43.3% ROIC after tax 26.5% 217E % % -2.8% 19.8% 12.6% 218E % % 12.6% 22.4% 14.7% 219E % % 5.1% 23.7% 16.5% IMPORTANT INFORMATION AND DISCLOSURES AT THE END OF THIS REPORT Markets