Tassal Group (TGR) Undervalued?

Hello, I would like to get your opinion on Tassal Group (TGR). The current share price is $3.74.

The company has a decent PE ratio (13.63), 4.3% dividend, reasonable debt to equity 55% and price to book of 0.98. They managed to achieve this while salmon prices over the past year have been at historic lows ($7.4 per kg), but now salmon prices are rebounding close to $10 per kg which smells like more profit.

Fish (salmon) - Monthly Price (Australian Dollar per Kilogram) - Commodity Prices - Price Charts, Data, and News - IndexMundi

NASDAQ Salmon Index

They have also diversified into growing prawns with sizeable yields on the way beginning this year.

The thing that has me scratching my head is they are the 5th most shorted stock on the asx at 9.4%. Recently there has been a smear campaign against their operating tactics ('Toxic' by Richard Flanagan)... But they own a number of brands and I imagine they could easily repackage their product or export to deal with any bad consumer sentiment if it becomes necessary.

I see them as undervalued, but I'd appreciate to hear anyone play devil's advocate.

 

They have always achieved higher earnings as they are protected as there are no cheaper salmon from Norway or Chile in Australia.

I do think it’s cheap at this price but I am not very confident about growth prospect. But do remember this kind of business has high risk, hence you should expect high reward...

Just my opinion.

 

Thanks for the input, what do you consider the biggest risks to be?

 

Diseases? Their products are perishables...

For example, I like Sims metal better even though its PE is 15. I don’t hold them now though, I regretted not buying at 7 dollars. I’m in the same field. Not much pressure regarding stock (scrap metals, plastics, paper).

 

There is a substantial political presence in TAS that wants them out of the state completely despite them being one of the largest employers in the state.

Prawns are an opportunity but supply / capability is only a drop in the pond. Could play a bigger role around wider seafood category as it is still underdeveloped post De Costi acquisition. Lots of competitors emerging in MAP seafood and low barrier to entry given fragmented supply though.

Local market for salmon is somewhat protected around what can be imported in fresh salmon so this helps maintain a relative balance with the 3 local manufacturers. It is all about profit/price per KG and therefore fresh salmon is the main game....

Can't really make the same money in the export market at the same scale as they're playing against huge players in that market.

Still opportunities for more household penetration given macro health trends and is accessible price wise vs. many other proteins.... but will always be lots of operational risk to manage.