Nordic Credit Rating (NCR) said today that it had affirmed its 'BBB+' long-term issuer rating on Norway-based SalMar ASA. The outlook is stable. At the same time NCR affirmed the 'BBB' senior unsecured issue rating. NCR raised the short-term rating to 'N2' from 'N3' reflecting our assessment that the company's liquidity situation has improved and will remain strong.
Rating rationale
The long-term rating reflects SalMar's strong profitability in relation to its peers. This is attributable to cost-efficient production, favourable farming locations, strong cash flow, and moderate financial leverage. In 2022, Salmar acquired Norwegian fish farmers NTS ASA and Norway Royal Salmon ASA, effectively cementing the company's position as the world's second-largest salmon farmer. Significant synergies have already been achieved and more are expected, leading to a likely improvement in the company's credit metrics.
The rating is currently constrained by the sector's historical earnings volatility due to unstable prices as a result of variable supply and the fact that salmon farmers are effectively price takers, particularly in recurring periods of oversupply. It is also constrained by environmental challenges and disease problems, which we take into account in our assessment of the operating environment. In addition, a proposed new "resource rent" tax on major fish farmers, which has still to be passed by parliament, points to significant political risk. Positively, we note that salmon is a healthy food product, with a lower environmental footprint than many other sources of protein.
Stable outlook
The stable outlook reflects our view that low supply growth will support global salmon prices over the next three years. We expect average prices of around NOK 90 per kg over this period, albeit with marked seasonality. In addition, we believe that SalMar will successfully integrate NTS into its operations and thereby create further synergies. Our forecasts reflect our estimates of the effect of the government's proposed resource rent tax. We generally believe that shareholders will bear the brunt of the impact as dividend payments could be reduced to mitigate the impact on cash flows. Moreover, the company could reconsider its long-term investment plans.
We could raise the rating to reflect NCR-adjusted funds from operations/net debt above 60% for a protracted period or lower cost levels achieved by sustainable improvements in biological performance.
We could lower the rating to reflect NCR-adjusted EBITDA/net interest below 10x for a protracted period or NCR-adjusted net debt/EBITDA above 2x for a protracted period. We could also lower the rating to reflect an increase in biological problems, such as disease and sea lice.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BBB+ | BBB+ |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N2 | N3 |
| Senior unsecured issue rating: | BBB | BBB |
Contacts:
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
Gustav Nilsson, analyst, +46735420446, gustav.nilsson@nordiccreditrating.com
The methodology documents used for this rating are NCR's Corporate Rating Methodology published on 18 Feb. 2022, NCR's Rating Principles published on 24 May 2022 and NCR's Group and Government Support Rating Methodology published on 18 Feb. 2022. For the full regulatory disclaimer please see the rating report.