Havfisk ASA BUY 3Q14 update Share Price: NOK 14 (04.11.2014) 4 November 2014 Target: NOK 18.6 (17.5) Share data (NOK m) 4 Nov 2014 Sector Fisheries Reuters/ Bloomberg HFISK Risk rating Medium risk Outst shares (m) 84.6 Market cap 1 227 NIBD 1 093 Enterprise value 2 320 Free float % 15 % Av volume (thous) 34 High/ low 52w 14.5 / 6.9 Weight OSEAX % 0.0663 Rel. Perf % (3/6/12 mts) 15/ 28/ 99 Abs. Perf. % (3/6/12 mts) 12/ 28/ 109 HFISK last 12 months 120% 100% 80% 60% 40% 20% 0% -20% nov.13 jan.14 mar.14 mai.14 jul.14 sep.14 nov.14 Prepared by analysts: Bent Rølland Fondsfinans AS TEL: +47 23 11 30 27 br@fondsfinans.no Philip M. Scrase Fondsfinans AS TEL: +47 23 11 30 23 ps@fondsfinans.no OSEBX HFISK DOM White fish prices climbing Potential fleet restructuring from 2H15 lowering long term cost HFISK reported 3Q revenues of NOK 296m, up from NOK 189m last year (+56% Y/Y). EBITDA came in at NOK 85m vs. NOK 45m last year (+89%) while harvesting went up by 2 700 t from 13 000 t last year to 15 700 t (+20% Y/Y). The company harvested 9 000 t cod, up 6% Y/Y. In 3Q white fish prices on average went up by around 30% Y/Y. For 4Q, the remaining cod quota is 10 400 t (13 600 t last year). On average 4Q fishing volumes will go down Y/Y, and we forecast prices to continue to climb. 2015 white fish quotas (TAC) in The Barents Sea are settled down by around 9%. We assume more domestic Russian white fish consumption due to the European food ban. In total, we increase 2015 cod prices equal to NOK 21/HG kg (up from NOK 16.5/HG kg for 2014). The Norwegian Government has proposed to increase the number of maximum allowed quotas from three to four per trawling vessel. Given that the proposal will be implemented, five HFISK vessels should be much more efficiently utilised, allowing sale of three smaller trawlers. Sale revenues from the vessels should be around NOK 100m and annual overhead savings should be significant. We have implemented new more flexible fishing rules from 2H2015 (previously 1Q15). At 3Q HFISK sold the first vessel Rypefjord for NOK 41m. The sales revenue will be 4Q booked when the vessel will be handed over in November. We estimate 2015 EBITDA of NOK 434m, up from NOK 331m for 2014. Further, we estimate 2015 NIBD of NOK 508m after selling Rypefjord and The Hammerfest processing plant (non-core asset as the plant will be moved to Forsøl). We adjust SOTP target from NOK 17.5 to NOK 18.6 per share and reiterate our buy recommendation. Key figures (NOKm) 2010 2011 2012 2013 2014E 2015E 3Q13 4Q13 3Q14 4Q14E Total revenues 2 915 862 774 778 1 034 1 181 189 260 296 298 Op cost 2 665 1 106 603 568 703 747 144 167 211 168 EBITDA 250 232 182 210 331 434 45 93 85 130 EBITDA-margin 9 % 27 % 24 % 27 % 32 % 37 % 24 % 36 % 29 % 44 % EBIT 123 153 78 133 202 298 25 72 51 96 PTP 64 105 31-77 125 273 11-101 30 84 EPS 0.56 0.85 0.74-0.60 1.08 2.36 0.09-0.83 0.25 0.73 EPS adj. 0.69 0.89 0.35 1.27 1.26 2.36 0.09 1.04 0.32 0.73 DPS 0.0 0.0 0.0 0.0 0.0 0.0 NIBD 995 691 650 998 917 508 858 1 011 1 093 943 Cod 18 256 23 719 25 861 36 165 32 727 29 454 8 470 13 644 9 017 10 447 Saithe 14 706 9 834 11 363 9 234 10 839 9 315 1 382 872 1 677 500 Haddock 11 781 18 115 15 570 8 762 7 920 7 920 2 542 2 321 2 134 2 300 Halibut, praw ns, redfish 6 565 5 029 3 346 2 532 7 889 7 778 645 555 2 882 1 000 Total fishing (H/G) 51 308 56 697 56 140 56 693 59 375 54 467 13 039 17 392 15 710 14 247 Fishing volumes Y/Y 9 % 11 % -1 % 1 % 5 % -8 % -7 % 41 % 20 % -18 % EBITDA/kg 3.4 4.1 3.2 3.7 5.6 8.0 3.5 5.3 5.4 9.1 Av. cost/hg kg 51.9 19.5 10.7 10.0 11.8 13.7 11.0 9.6 13.4 11.8 EV/ Sales 0.7 2.2 2.4 2.8 2.0 1.4 EV/ EBITDA 8.7 8.1 10.1 10.4 6.3 3.9 EV/EBIT 17.7 12.3 23.5 16.4 10.4 5.7 P/E adj 20.3 15.7 n.m. 11.1 11.1 5.9 P/B 1.1 1.4 1.4 1.4 1.5 1.1 Source: Fondsfinans Research, Havfisk ASA FONDSFINANS AS, HAAKON VII S GATE 2, P.O. BOX 1782 VIKA, NO-0122 OSLO, TEL: +47 23 11 30 00, FAX: +47 23 11 30 03, mail@fondsfinans.no This report was prepared by an analyst engaged by Fondsfinans AS, the Norwegian affiliate of Fondsfinans Inc., who is not registered as a research analyst with FINRA or subject to FINRA rules governing research. See page 9 of this report for Important Disclosure Information.
Market outlooks Cod prices continue to climb (both first hand and export prices) The tables below sum up Norwegian export of H/G cod in tonnes (FOB prices measured at the Norwegian border). The market is responding positively. Week 43: Cod price around NOK 27.8/kg vs. NOK 23.3/kg for week 34. Cod convert. ratio: 1.5 Average first hand prices for Norwegian cod landings are moving up. October prices are significantly above September prices. The average price for October 2014 is up around NOK 3 Y/Y. As 2015 cod quotas are down by 10% (equal to around 100 000 HG t), we forecast even higher cod prices for 2015. In addition, we forecast more domestic consumption of white fish in Russia as a result of the food ban from Europe. Average 2014 HFISK first hand cod price should be around NOK 16.5/HG (70% freeze and 30% fresh volumes). We forecast an average 2015 HFISK cod price of around NOK 21/HG kg (up from NOK 17.8/HG in last note). Fish quality should also be better Y/Y as all 3 new vessels will be in full year operations. These vessels have modern freeze technology. Page 2 4 November 2014 Fondsfinans Research
The Norwegian/Russian commission approved the quota advice from the scientists 2015 quotas are now set Cod quotas down 10% Y/Y => The market could over time, turn demand driven New vessels saving fuel and NOX tax. 3Q14 grant of NOK 25m The table below indicates white fish quota developments White fish prices are set to climb White fish quotas for 2015 are down 8% on average (see the table below). White fish quotas, wfe t (TAC) 2011 2012 2013 2014 2015 12/11 13/12 14/13 15/14 Cod (>62) 650 000 750 000 1 000 000 993 000 894 000 15 % 33 % -1 % -10 % Haddock (>62) 285 000 295 000 223 000 178 500 178 500 4 % -24 % -20 % 0 % Saithe (open) 160 000 150 000 155 000 119 000 110 000-6 % 3 % -23 % -8 % Black halibut 20 000 20 000 20 000 19 000 19 000 0 % 0 % -5 % 0 % Total quotas 1 115 000 1 215 000 1 398 000 1 309 500 1 201 500 9 % 15 % -6 % -8 % The New HFISK trawling vessels, Gadus Poseidon, Njord and Neptun delivered and paid (full cost effect from 2015 when the Government increase Maximum Allowed catch from 3 to 4 quota per vessel) In September 2011, Havfisk announced that it had ordered the building and equipment of three new trawlers at STX OSV AS (Vard) in Romania and Norway (Vard Brattvåg). The first trawler, Gadus Poseidon, was delivered in 2Q13. Gadus Njord entered fishing in November 2013 and Gadus Neptun was delivered in March 2014. According to HFISK, the new trawlers consume at least 20% less fuel compared to current vessels consuming 13,000 litres of fuel per day. The purchase of the vessels is fully funded in 2 banks. 69.8 x 15.6m trawlers + double hull Hulls built at Vard in Romania and equipped at Vard Brattvåg at Sunnmøre All 3 vessels in the Barents Sea in 4Q14 for Fondsfinans Research 4 November 2014 Page 3
the first time (3Q: one vessel at Greenland) Overview of present HFISK vessels We have included additional vessel values on the company equal to around NOK 1.3b HFISK fleet restructuring. From 10 to 8 vessels longer term when turning to max. 4 (3) quota per vessel Havfisk ASA - Vessel and quota overview after potential 2015 restructuring (EV vessel of NOK 1.35b) No. Fishing vessel EV Trawler Built/modernized Gross ton Licences Cod Saithe Haddock Redfish Prawn Halibut N. Sea Nordfjordtrål (sold at 4Q12 - NOK43m) 0 Combi 1998 931 Rypefjord (ex Skaidi). 4Q14 sold (41m) 0 Combi 2001/2006 699 3.0 x x x x Fresh tow ards Forsøl 1 Doggi (ex. Soløyvåg) 30 Combi 2001/2007 691 3.0 x x x x Fresh towards Forsøl Hammerfest Industrifiske AS 60% 18 Shareholder agreement 6.00 2 Vestind II (ex Kongsfjord) 50 Freeze 2000/2007 2 243 4.0 x x x Could carry 4 quotas Hekktind (sold to Russia, NOK 46m) 0 Combi 1993 1 120 3 Gadus Njord 240 Freeze 2013 3 441 4.0 x x x Into 4q13 fishing 4 K. Arctander 30 Combi 1995/2000/2012 1 192 x x x Stamsund (for sale) 25 Fresh 1998 698 5 Havtind II (ex Polar Amarog) 70 Freeze 1997/2010 1 860 4.0 x x Could carry 4 quotas x Nordland Havfiske AS 100% 175 12.08 6 Båtsfjord 60 Combi 1999/2014 1 190 3.00 x x x 7 Gadus Poseidon 240 Freeze 2013 3441 4.0 x x x Into3q13 fishing x 8 Gadus Neptun 240 Freeze 2013 3441 4.0 x x x Into 2q14 fishing x Kongsfjord II 40 Combi 1996/2013 1 598 Jergul (transaction on hold) 1 Fresh 1972 585 0.5 Transaction on hold - term sheet terminated Finnmark Havfiske AS 97.62% 11.5 SOTP HFSIK trawler values 1 219 NOKm Total cod and haddock quotas 29.58 Additional North Sea quotas Source: Havfisk ASA/Fondsfinans Research Sale of 1.38 Cod quotas to the Finnmark company Hermes, terminated at 2Q 2014 The buyer was Hermes (local Finnmark player) Sale valuing cod quota to around NOK 72m per quota equivalent (these are free quotas) As a part of the transaction, Havfisk at 4Q13 sold its oldest vessel, the 41 year old Jergul, with cod, haddock and saithe quotas. The sale included 1.35 quotaunits for cod and haddock and 1.38 quota-units for saithe north of the 62 parallel, and 1.0 quota units for saithe south of the 62 parallel. The agreed purchase amount for vessel and quota was NOK 113.6m, where the vessel is valued at NOK 1.6m. The sale was planned to be closed at 2Q14. However, the sale was subjected to approval from The Norwegian Government. At the end of 2Q such approval from the Government was not granted. Consequently, the transaction was terminated. The HFISK management has, however, indicated that the parties could still reach an agreement later on if an approval from the Government will be given. YTD no approval has been given. Updated HFISK estimates (quarterly numbers) First hand prawn prices: around NOK 22/kg. Black halibut: NOK 25/kg 3Q EBITDA of NOK 5.4/kg (vs. NOK 2.6/kg last year) HFISK, landing volumes H/G 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14E 1Q15E 2Q15E Cod 5 681 8 184 7 026 7 025 8 470 13 644 8 991 4 272 9 017 10 447 8 092 3 845 Saithe 2 896 1 340 3 271 3 709 1 382 872 4 911 3 751 1 677 500 4 322 3 001 Haddock 4 823 2 379 3 063 836 2 542 2 321 2 253 1 233 2 134 2 300 2 253 1 233 Prawns 0 420 0 0 0 0 0 361 423 0 0 600 Redfish, black halibut 615 0 549 783 645 555 509 3 137 2 459 1 000 509 2 510 Total HFISK 14 015 12 323 13 909 12 353 13 039 17 392 16 664 12 754 15 710 14 247 15 176 11 188 Total landings Y/Y -19 % 5 % -6 % -18 % -7 % 41 % 20 % 3 % 20 % -18 % -9 % -12 % Cod landings Y/Y 24 % 9 % -19 % 110 % 49 % 67 % 28 % -39 % 6 % -23 % -10 % -10 % Landing prices H/G 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14E 1Q15E 2Q15E Cod price/kg H/G 14.9 13.5 13.1 13.2 13.8 15.0 14.3 15.4 16.7 19.5 19.0 22.0 Saithe price H/G 10.7 10.1 10.2 9.5 10.5 12.3 13.6 13.2 15.0 17.0 17.0 17.0 Haddock price H/G 9.5 11.3 12.9 14.0 19.6 22.0 20.7 23.1 23.3 24.0 24.0 24.0 Av. HFISK first hand price 12.2 13.4 12.4 12.7 14.5 14.9 12.8 17.7 18.8 20.9 19.7 22.2 Harvesting cost/kg 10.1 10.1 9.4 10.2 11.0 9.6 8.7 14.0 13.4 11.8 11.2 16.0 Harvesting cost/kg Y/Y 0.0-2.6-2.1-0.4 0.9-0.5-0.7 3.8 2.4 2.2 2.5 2.0 Cost/kg Y/Y, pst 0 % -20 % -19 % -4 % 9 % -5 % -8 % 38 % 22 % 23 % 29 % 14 % EBITDA/kg 2.1 3.7 2.9 2.6 3.5 5.3 4.1 3.7 5.4 9.1 8.5 6.2 Vessels in operation 11 10 10 10 10 11 10 10 11 10 10 10 HFISK, NOK m 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14E 1Q15E 2Q15E Revenues 171 165 172 157 189 260 214 226 296 298 300 249 EBITDA 29 45 41 32 45 93 68 47 85 130 130 69 EBITDA-margin 17 % 27 % 24 % 20 % 24 % 36 % 32 % 21 % 29 % 44 % 43 % 28 % EBIT 8 26 23 14 25 72 38 16 51 96 96 35 CFop -10 66 19 25 41 58 30 14 87 118 118 58 Inventories 115 54 51 34 39 50 86 70 56 56 56 56 NIBD* 747 650 652 651 858 1 011 1 203 1 192 1 093 943 838 724 Source: HFISK/Fondsfinans Research*) 3Q14 NIBD includes provision for trial at Iceland (NOK 173m) Page 4 4 November 2014 Fondsfinans Research
The image part with relationship ID rid19 was not found in the file. Havfisk ASA - 3Q14 update Annualised updated estimates Cod up around NOK 4.5/kg Y/Y Expecting prices on average to climb by 24% Y/Y Cost up by 16% for 2015. Number of vessels in operations will most likely be reduced from 11 to 8 from 2H15 (previously we expected 1Q15) Norway Seafoods shares transferred to HFISK shareholders in 2013 HFISK Volumes H/G 2010 2011 2012 2013 2014E 2015E Cod 18 256 23 719 25 861 36 165 32 727 29 454 Saithe 14 706 9 834 11 363 9 234 10 839 9 315 Haddock 11 781 18 115 15 570 8 762 7 920 7 920 Praw ns 2 125 2 569 1 061 0 784 1 300 Redfish, black halibut 4 440 2 460 2 285 2 532 7 105 6 478 Total HFISK 51 308 56 697 56 140 56 693 59 375 54 467 Total Y/Y 9 % 11 % -1 % 1 % 5 % -8 % Cod Y/Y 38 % 30 % 9 % 40 % -10 % -10 % Landing prices H/G 2010 2011 2012 2013 2014E 2015E Cod price/kg H/G 16.4 17.9 15.6 13.6 16.5 21.0 Saithe price H/G 11.6 12.9 12.6 10.2 14.7 17.0 Haddock price H/G 11.3 11.7 10.7 17.4 22.8 24.0 Av. first hand price 14.9 15.2 13.8 13.7 17.4 21.7 Price increase Y/Y 16 % 2 % -9 % 0 % 27 % 24 % Harvesting cost/kg*) 11.4 11.0 10.6 10.0 11.8 13.7 Harvesting cost/kg Y/Y 1.6-0.4-0.3-0.6 1.8 1.9 Cost/kg Y/Y, pst 16 % -3 % -3 % -6 % 18 % 16 % EBITDA/kg 3.4 4.1 3.2 3.7 5.6 8.0 Vessels in operation*) 12 11 11 10 10 8 *) Restructuring the fleet from 2H 2015 onwards - 8 vessels in operation (down from 10 today) HFISK, NOKm 2010 2011 2012 2013 2014E 2015E Revenues 762 862 774 778 1034 1181 EBITDA 176 232 182 211 330 434 EBITDA-margin 23 % 27 % 24 % 27 % 32 % 37 % EBIT 93 153 101 134 201 298 CFop 77 176 110 143 249 389 Inventories 161 53 54 50 56 56 NIBD* 995 691 650 998 917 508 *) Iceland trial provision not included in NIBD (NOK173m) Norway Seafoods Group AS (OTC-listed) On February 2 2014 the OTC listed Norway Seafoods Group AS processing and sales company announced a NOK 150-200 m investment programme running to 2017, aiming to create profitability in the land based industry in Nordland and Finnmark though increased sales and operational efficiency. The main processing plants at Stamsund, Melbu, and Båtsfjord will be developed further, while the Mehamn plant is now sold towards local investors. The Government has accepted that Havfisk is not obliged to deliver fresh fish volumes to the Mehamn plant. Further, a new smaller fresh fish plant at Forsøl close to Hammerfest will replace the large existing Hammerfest plant that will be sold by HFISK. Norway Seafoods operates 4 smaller plants at Tromvik, Sørvær, Berlevåg and Kjøllefjord. Finally, the company manages 6 sourcing stations at Stamsund, Kleppstad, Skårvågen, Skarsvåg, Nessby and Vardø that should supply the larger processing plant with additional important raw materials. The Norway Seafoods strategy involves a higher degree of specialisation of the different processing plants and a higher share of cod of high quality. Live storage of cod will, probably over time, take place in Båtsfjord and Melbu, and other locations could also over time be considered. Live storage of cod could, to certain extend, contribute to smooth seasonality and help developing consumer demand. In 2013 Norway Seafoods established its own brand name for the retail and restaurant markets, and the company underlines that product development will be an important driver ahead. Recently, Fondsfinans Research 4 November 2014 Page 5
new consumer packed cod products are introduced to the domestic market. Havfisk ASA normally follows a different seasonal catch pattern than the coastal fleet, which already dampens seasonality somewhat. In 2014 Havfisk has modified two of its existing freeze trawlers in order to facilitate a higher capacity to deliver fresh cod (rebuild to combi trawlers). The table below sums up quarterly earnings YTD. Norway Seafoods, NOKm 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 Revenues 330 373 434 432 395 397 509 397 346 EBITDA -5 2 7 3-2 -18 3-9 -1 EBITDA-margin -2 % 1 % 2 % 1 % -1 % -5 % 1 % -2 % 0 % EBIT -13-6 -1-4 -9-29 -4-15 -7 CFop -49 29-3 -26 9 39-33 6-20 Inventories 156 151 145 144 120 103 137 144 147 NIBD* 284 267 277 309 281 253 291 287 310 Equity ratio 28 % 23 % 21 % 19 % 19 % 18 % 19 % 19 % 17 % * NIBD distribution: Subordinated loan from HFISK of NOK 100m. Total 1Q (4Q) debt towards HFISK of NOK 206 (201)m Norway Seafoods (processing) 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 Primary processing 3 778 4 998 5 889 4 599 2 895 3 188 6 421 3 880 2 709 Fresh share of processing n.r. 34 % 31 % n.r. 36 % 36 % 33 % 25 % 39 % Fresh VAP production 752 582 754 694 775 899 879 704 729 Frozen VAP production 690 1 144 961 1 051 857 900 1 038 852 760 Total VAP production 5 220 6 724 7 604 6 344 4 527 4 987 8 338 5 436 4 198 Norway Seafoods (sales) 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 Sale of primary process. products 3 863 4 944 5 322 4 226 3 726 4 427 3 838 3 541 2 717 Sale of fresh VAP products 752 764 746 702 842 899 882 705 733 Sale of frozen VAP products 805 884 980 773 947 879 939 881 895 Total sale of VAP products 8 058 10 349 11 508 10 726 8 345 9 492 9 691 9 074 7 344 Sale of unprocessed fish 2 638 3 757 4 460 5 025 2 830 3 287 4 032 3 947 2 999 Updated SOTP values of Havfisk ASA We continue to set the restricted Havfisk quota values equal to NOK 35m apiece even though free quotas have been traded at significantly higher levels (NOK 70-75 m per free quota). At the end of 2012, external auditors assessed the value of the Norwegian Havfisk ASA cod quotas to NOK 50m apiece, according to the company s annual report. According to the company, the valuation is based on transaction values for equivalent quotas adjusted for transaction costs. Our discount is due to the fact that Havfisk still has landing commitments in Northern Norway (10-15% of total harvesting volume) towards smaller third party processing plants. Hence, most of the HFISK white fish quotas are not free quotas. However, over time we expect positive clarification in regulatory issues. The new Government has indicated that more flexible fishing rules will be implemented. We assume from 2H 2015. Furthermore, the trawling vessels are obliged to offer its fresh fish harvest to Norway Seafoods processing plants at Melbu, Hammerfest and Berlevåg on a first-right-of-refusal basis. Such landing obligations increase, to some extent, costs. On-board processed and frozen fish material has much more landing flexibility than is the case for fresh HOG fish. Our upstream SOTP only takes into consideration the current Norwegian fishing regime. A future, more flexible fishing regime would potentially increase quota values. Any such scenario is not implemented in our current SOTP model. Page 6 4 November 2014 Fondsfinans Research
SOTP values of NOK 18.7 (17.5) per share Provision of NOK 174m related to Iceland law suit equals NOK 2/share (provision not included in current NIBD) At 3Q presentation at FF office management indicated dividend payments based on 2015 results if positive ruling in the Iceland/ Glitnir trial SOTP Havfisk ASA Quotas Ownership Value EBITDA15 EV Nordland Havfiske AS 12.08 100 35 423 Finnmark Havfiske AS 11.52 97.62 35 394 Hammerfest Industrifiske AS 60% ownership 6.00 60 35 126 Additional trawling vessel values (own table) 97.62 1 219 HFISK white fish quota values > 62 latitute 29.60 73 2 161 Separate prawn/black halibut quotas 7 97.6 5 34 Saithe quotas in the North Sea 8 60 15 72 Greater silver smelt quotas 3 100 6 18 EV upstream (Havfisk ASA) 93 5.3 434 2 286 NIBD 31.12.2015. Fleet program paid, Hammerfest plant and Rypefjord sold 534 Equity values 1 751 Outstanding Shares (mill) 84.6 SOTP Havfisk ASA 20.7 Glitnir trial (Provision not in NIBD) 174 Glitnir trial per share 2.06 Target price Havfisk ASA 18.6 HFISK lost initial court case Supreme court for final decision in January 2015 Liability of NOK 1.9/share included in NIBD The Iceland law suit (Glitnir case) On 30 December 2013, Reykjavik District Court passed judgement in the case regarding Havfisk s interest rate, inflation and currency swap agreement with Glitnir. The ruling is that Havfisk did not have the right to cancel the agreement i 2008, and the company is ordered to pay the equal of NOK 172m in compensation and interest. Havfisk maintains its belief that the ruling is incorrect and will appeal. The ruling is not finally binding, and according to Iceland's legal system with two instances, the appeal goes to Iceland's Supreme Court for final decision. According to the company, it is expected that the trial be concluded by the Supreme Court in January 2015. Any payment of a claim would not occur until after the Supreme Court judgement. In our updated SOTP we have included the NOK 174m provision as a liability (equal to increase of around NOK 2/share in NIBD). In the case of a different ruling by the Supreme Court, this will increase the book equity and P/B will fall. Estimate changes: Havfisk ASA New14 Old2014 New15 Old15 14 % 15 % Revenues 1 034 831 1 181 978 25 % 21 % Op cost 703 535 747 560 32 % 33 % EBITDA 331 296 434 418 12 % 4 % EBIT 202 176 298 294 15 % 2 % Cod 32 727 32 691 29 454 29 037 0 % 1 % Saithe (incl North Sea) 10 839 11 711 9 315 11 756-7 % -21 % Haddock 7 920 7 590 7 920 8 715 4 % -9 % Others (redfish/prawns) 7 889 3 209 7 778 4 607 146 % 69 % Total fishing (H/G) 59 375 55 201 54 467 54 115 8 % 1 % Cost/kg 11.8 9.7 13.7 10.3 22 % 32 % PTP 125 112 273 246 11 % 11 % EPS adj. 1.26 1.02 2.36 2.10 24 % 12 % NIBD (UB) 917 926 508 682-1 % -25 % Source: Fondsfinans Research Fondsfinans Research 4 November 2014 Page 7
Risk assessment Always regulatory and market risks in wild-catch Our Havfisk valuation is based on long term sustainable harvesting volumes of white fish in the North Sea, the Nordic Sea and the Barents Sea. Higher or lower sea water temperature may in the long run affect white fish stocks or the fish could move to other sea waters. Thus, harvest volumes, price achievement and profitability may be affected. Further, the long term value of the HFISK quotas is set significantly lower than for free quotas without landing obligations. HFISK is, however, valued as a going concern. The liquidation value of the company is probably much higher. Further, our SOTP target is based on the existing fishing regime of today. The annual issue of white fish quotas in the Barents Sea is subject to an agreement between Norwegian and Russian governments. Fishing in the North Sea is subject to a multilateral agreement between EU-countries and Norway. Regulatory risks in white fish harvesting are generally higher than in other industries. Page 8 4 November 2014 Fondsfinans Research
Definitions of ratings Buy Low risk: with a potential of min 5%. Medium risk: with a potential of min 10%. High risk: with a potential of min 20%. Neutral Low risk: -5% to +5%. Medium risk: -10% to +10%. High risk: -20% to +20%. Sell Low risk: min 5%. Medium risk: min 10%. High risk: min 20%. Risk ratings are based on price volatility, fundamental criteria and perceived risk. Ratings are: Low (L), Medium (M) and High (H). Target: Our valuation as of today. Time frame of target: Target is what we value the share as of today. Recommendation distribution as of 29.10.14: Companies in each recommendation category that have been investment banking clients over the past 12 months: Recommendation No Percent Recommendation No Percent Buy 50 74 % Buy 4 8 % Neutral 15 22 % Neutral 0 0 % Sell 3 4 % Sell 0 0 % Total 68 100 % Total 4 Our intention is to issue preview and update research on a quarterly basis. Our investment recommendation is elaborated in accordance with The Norwegian Securities Dealers Associations standards. This report has not been sent to the company for correction of any factual errors. Fondsfinans is organized with Chinese walls between the Corporate Department and the Research/Broking Department. In addition, Fondsfinans has internal instructions and guidelines for handling sensitive information. The analysts receive compensation that is impacted by overall firm profitability, including investment banking activities. Fondsfinans is under supervision of The Financial Supervisory Authority of Norway. The recommendation has not been changed from BUY. The previous recommendation was issued 18.07.14. Ownership per 18.07.14 in Havfisk ASA: Analyst (including his/her closely related persons or companies): 0, corresponding to 0% of the company share capital Employees (including their respective closely related persons or companies): 0, corresponding to 0% of the company share capital Group Fondsfinans (including the holdings of its Chairman, his spouse and their closely related companies, Erik Must AS and its 100% controlled subsidiaries): 0, corresponding to 0% of the company share capital. Fondsfinans may hold shares in Havfisk ASA as a result of daily trading/market making. Information on such holdings is not given when of non-significant value. Fondsfinans do not act as market maker in Havfisk ASA. Fondsfinans has not acted as corporate adviser, lead manager in IPO etc. during the past 12 months. This report was issued and distributed 04.11.14. DISCLAIMER This report is provided for information purposes only. It should not be used or considered as an offer to sell or a solicitation of an offer to buy any securities. Any opinions expressed are subject to change without prior notice. This report is based on information from various sources believed to be reliable. Although all reasonable care has been taken to ensure that the information herein is not misleading, Fondsfinans AS makes no representation or warranty expressed or implied as to its accuracy or completeness. Neither Fondsfinans AS, its partners and employees, nor any other person connected with it, accepts any liability whatsoever for any direct or consequential loss of any kind arising out of the use or reliance on the information in this report. This report is prepared for general circulation and general information. It does not take into account the specific investment objectives and financial situation of any recipient. Investors seeking to buy or sell any securities discussed or recommended in this report, should seek independent financial advice relating thereto. This report may not be distributed, quoted from or reproduced for any purpose without written approval by Fondsfinans AS. DISCLOSURE OF INTERESTS Fondsfinans AS is constantly seeking investment-banking mandates, and may at any time perform investment banking or other services or solicit investment banking or other mandates from the company or companies covered in this report. Fondsfinans AS may from time to time as part of its investment services hold positions in securities covered in this report. Under our internal regulations, our analysts are not permitted to purchase new securities in the companies they cover. Holdings are specified as part of shareholder information in each report. DISTRIBUTION IN THE US Research reports are prepared by Fondsfinans AS for information purposes only. Fondsfinans AS and its employees are not subject to the Rules of the Financial Industry Regulatory Authority (FINRA) governing research analyst conflicts. The research reports are intended for distribution in the United States solely to major U.S. institutional investors as defined in Rule 15a-6 under the United States Securities Exchange Act of 1934, as amended and may not be furnished to any other person in the United States. Each major U.S. institutional investor that receives a copy of a Fondsfinans AS research report by its acceptance thereof represents and agrees that it shall not distribute or provide copies to any other person. Reports are prepared by Fondsfinans AS and distributed to major U.S. institutional investors under Rule 15a-6(a)(2). These research reports are prepared by Fondsfinans AS and distributed in the United States by Fondsfinans Inc. under Rule 15a-6(a)(2). Any U.S. Person receiving these reports that desires to effect transactions in any securities discussed within the report should call or write Fondsfinans Inc., a member of FINRA. Fondsfinans Research 4 November 2014 Page 9
Havfisk ASA Analysts: Bent Rølland +23 11 30 27 and Philip M. Scrase +23 11 30 23 Sector: Fisheries Price (NOK): 14.0 Shares outst.: 84.6m Date: 03.nov.14 Book equity per share (NOK): 10.7 Market cap (NOKm): 1 185 Next result: TBA Equity ratio: 38 % Net int.bearing debt (NOKm): 1 093 Target 18.6 Avg daily vol (90d): 33.8 Entrprise value (NOKm): 2 278 Recommendation: Buy 12 months High / Low: 14.5 / 6.9 OSEBX: 587 Financial data (NOKm) 2011pf 2012 2013 2014E 2015E 3Q13 4Q13 1Q14 2Q14 3Q14E 4Q14E 1Q15E Operating income 862 774 778 1 034 1 181 189 260 214 226 296 298 300 Costs of goods/other op. ex. 1 106 603 568 703 747 144 167 145 179 211 168 170 EBITDA 232 182 210 331 434 45 93 69 47 85 130 130 EBITDA-margin 27 % 24 % 27 % 32 % 37 % 24 % 36 % 32 % 21 % 29 % 44 % 43 % Depreciation 79 81 77 129 136 20 21 30 31 34 34 34 EBIT (operating profit) 153 78 133 202 298 25 72 39 16 51 96 96 EBIT-margin 18 % 10 % 17 % 20 % 25 % 13 % 28 % 18 % 7 % 17 % 32 % 32 % Associates 0 0 0 0 0 0 0 0 0 0 0 0 Net financial expences 48 47 52 62 25 14 15 19 15 16 12 7 PTP (profit before tax) 105 31-77 125 273 11-101 15-4 30 84 89 Taxes 32 23-25 34 74 3-31 4-1 8 23 24 Profit for the period 73 8-51 91 200 8-70 11-3 22 62 65 Outstanding shares (m) 84.6 84.6 84.6 84.6 84.6 84.6 84.6 84.6 84.6 84.6 84.6 84.6 Adjusted result 76 30 107 107 200 8 88 16 2 27 62 65 EPS 0.85 0.74-0.60 1.08 2.36 0.09-0.83 0.13-0.04 0.25 0.73 0.76 EPS adj 0.89 0.35 1.27 1.26 2.36 0.09 1.04 0.19 0.02 0.32 0.73 0.76 CF from operations per share 2.1 1.3 1.7 2.9 4.6 0.5 0.7 0.4 0.2 1.0 1.4 1.4 EV/Sales 2.8 2.0 1.4 P/B 1.4 1.5 1.1 EV/EBIT 16.4 10.4 5.7 EV/EBITDA 10.4 6.3 3.9 P/E adj 11.1 11.1 5.9 Havfisk upstream 2011pf 2012 2013 2014E 2015E 3Q13 4Q13 1Q14 2Q14 3Q14E 4Q14E 1Q15E Operation income 862 774 778 1 034 1 181 189 260 214 226 296 298 300 Operation costs 622 597 568 703 747 144 167 145 179 211 168 170 EBITDA 232 182 211 330 434 45 93 68 47 85 130 130 Depreciation 79 81 77 129 136 20 21 30 31 34 34 34 EBIT (operating profit) 153 101 134 201 298 25 72 38 16 51 96 96 Cod 23 719 25 861 36 165 32 727 29 454 8 470 13 644 8 991 4 272 9 017 10 447 8 092 Saithe (incl North Sea) 9 834 11 363 9 234 10 839 9 315 1 382 872 4 911 3 751 1 677 500 4 322 Haddock 18 115 15 570 8 762 7 920 7 920 2 542 2 321 2 253 1 233 2 134 2 300 2 253 Prawns 2 569 1 061 0 784 1 300 0 0 0 361 423 0 0 Redfish and black halibut 2 460 2 285 2 532 7 105 6 478 645 555 509 3 137 2 459 1 000 509 Total harvesting Norway (H/G t) 56 697 56 140 56 693 59 375 54 467 13 039 17 392 16 664 12 754 15 710 14 247 15 176 Harvesting growth YoY 11 % -1 % 1 % 5 % -8 % -7 % 41 % 20 % 3 % 20 % -18 % -9 % HFISK price/ H/G 15.20 13.79 13.72 17.42 21.68 14.49 14.95 12.84 17.72 18.84 20.95 19.74 Cost per kilo H/G 10.97 10.63 10.02 11.84 13.71 11.04 9.60 8.70 14.03 13.43 11.80 11.20 EBITDA (NOK/ H/G) 4.09 3.24 3.72 5.56 7.98 3.45 5.35 4.08 3.69 5.41 9.14 8.54 Reference prices 2011pf 2012 2013 2014E 2015E 3Q13 4Q13 1Q14 2Q14 3Q14E 4Q14E 1Q15E First hand price, cod H/G 17.9 15.6 13.6 16.5 21.0 13.8 15 14.3 15.4 16.7 19.50 19.0 First hand price, haddock H/G 11.7 10.7 17.4 22.8 24.0 19.6 22 20.7 23.1 23.3 24.00 24.0 First hand price, saithe H/G 12.9 12.6 10.2 14.7 17.0 10.5 12.3 13.6 13.2 15 17.00 17.0 Av. first hand sale price 15.2 13.8 13.7 17.4 21.7 14.5 14.9 12.8 17.7 18.8 20.95 19.7 Price increase Y/Y 2 % -9 % 0 % 27 % 24 % 19 % 12 % 4 % 39 % 30 % 40 % 54 % Havfisk ASA (balance Sheet) 2011 2012 2013 2014E 2015E Shareholders (4.11.2014) Shares Per cent Intangible assets 1 690 1 607 2 239 2 111 1 956 1 Aker ASA 62 001 793 73.2% Tangible fixed assets 128 136 65 0 0 2 Marine Harvest ASA 10 092 923 11.9% Total intangible and intangible fixed as 1 818 1 743 2 304 2 111 1 956 3 Cortex AS 1 778 835 2.1% Financial fixed assets 131 311 188 185 185 4 Converto Capital 1 283 290 1.5% Total assets 2 113 2 185 2 660 2 627 2 880 5 Kontrari AS 1 204 808 1.4% Total equity 858 871 833 812 1 086 6 SES AS 825 000 1.0% Total long-term liabilities 1 025 1 088 1 402 1 450 1 450 7 Nordnet Bank 431 495 0.5% Total equity and liabilities 2 112 2 185 2 661 2 700 2 954 8 Bentneset Invest AS 280 000 0.3% NIBD 691 650 998 917 508 9 Jah AS 277 600 0.3% CF Havfisk 10 Jim Øystein Holden 250 500 0.3% From operations 176 110 143 249 389 11 Stator AS 234 185 0.3% From investments -81-174 -495-174 20 12 Capreca AS 220 300 0.3% From finance -100-1 323 80 0 13 MP Pensjon 213 000 0.3% Net cash flow -5-65 -29 155 409 Other shareholders 5 552 287 6.6% Cash end of the period 143 53 24 179 588 Total Shares 84 646 016 100%