Daily ShareChat: Sanford Limited

By Jenny Ruth

Monday 3rd August 2009

Sanford's $23.4 million acquisition of mussel farms in the Marlborough Sounds provides the fishing company with increased growing space and leverages its technology investment in automated mussel opening, says Adrian Allbon at Goldman Sachs JB Were.

The company expects to be able to double the current throughput within three years. The farms include about 240 hectares of water space and equipment for growing mussels and spat.

"Another positive from the transaction is further evidence Sanford and Sealord (the seller) are developing a closer working relationship to rationalise the industry cost base," Allbon says.

Although details weren't disclosed he expects the transaction to meet Sanford's investment hurdle rate of about 15%. Based on that assumption, Allbon expects the additional aquaculture volume will boost Sanford's earnings before interest and tax by $5 million a year once the farms are fully productive and integrated. That boosts his valuation by 15 cents to $5.80 a share.

Nevertheless, his 12-month target price is $5.05 compared with Friday's close at $5.30, reflecting his expectation of negative news on its key earnings drivers.

"We think investors should continue to realise Sanford's strong 12-month outperformance (+11%) and recycle capital into other New Zealand cyclicals trading at deeper discounts to their fundamental value," Allbon says.

BROKER CALL: Goldman Sachs JB Were rate Sanford (NZX: SAN ) as sell.

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