Salmar Gains as Cost Drive Boosts Earnings Prospects: Oslo Mover

Salmar ASA, the fourth-largest salmon producer, climbed to the highest level in more than 1-1/2 years in Oslo trading as rising fish prices and a drive to reduce costs improves the company’s earnings prospects.

Shares in the Froeya, Norway-based group rose as much as 3.5 percent to 58.5 kroner, the highest intraday level since June 15, 2011, and traded up 3.1 percent as of 11:15 a.m. local time. Volume was almost double the three-month daily average.

“Costs are moving in the right direction” Chief Executive Officer Yngve Myhre said in a statement today. “Combined with operational improvement projects, we expect production costs per kilogram to fall in 2013,” he said.

Salmon producers have reduced capacity and cut costs in an effort to boost earnings after prices slumped in 2011 as global supply outpaced demand growth. Shares in fish farmers tumbled that year as prices slumped 60 percent to 18 kroner a kilogram (2.2 pounds) from April to October amid rising production from Norway and Chile, the world’s two largest fish farmers.

Selling prices have since recovered to about 36.65 kroner, according to Fish Pool ASA, a clearing house for financial contracts on salmon. Prices are forecast to average about 32.7 kroner this year, Salmar said, citing February forward prices.

The company reported fourth-quarter earnings before interest, tax, depreciation and amortisation of 173.6 million kroner, up from 118.1 million kroner a year earlier and beating the 148.3 million average of nine analyst estimates compiled by Bloomberg. Sales rose 23 percent to 1.33 billion kroner.

Pancreas Disease

“The better than expected result was driven by very good operations” in northern Norway and “continued improvement” at Salmar’s mid-Norway operations, Pareto Securities ASA analyst Henning Lund said in an e-mail. Even through the company’s Rauma unit posted a loss after finding pancreas disease at one of its locations, the unit is “bounding for improved cost levels in the coming quarters,” the broker said.

Pareto, which has a buy rating on Salmar, increased its 12-month price target on the stock to 66 kroner from 65 kroner.

Shares in Salmar have gained almost 75 percent in the last 12 months, giving the company a market value of 6.6 billion kroner. Marine Harvest ASA, the world’s largest salmon farmer, has doubled in the same period.