New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Sanford<br>An Alternative Valuation&nbsp;</h2>
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<p><strong>OUTPERFORM</strong></p>
<p>Sanford (SAN) provides investors exposure to a series of unique, quasi-property assets, in its significant fishing quota holdings and extensive marine farm licences. SAN's share price has seen a material de-rating through 2020 as the company attempts to navigate COVID-19 headwinds. Whilst news flow is expected to remain negative in the short-term, we view SAN's share price as approaching an asset backed support level (book value of quota &amp; licenses NZ$5.21/share) and therefore see an attractive entry point. We estimate a market sum of the parts valuation of SAN's quota and marine farms is NZ$8.37/share, based on a mixture of market transactions and comparable values. ​​​​​​​At the current market price, investors are receiving the aquaculture assets for free.</p>
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<h3>Underlying asset value provides downside support</h3>
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<p>SAN's&nbsp;quota holdings and extensive marine farm interests provide value support&nbsp;in our view. Recent&nbsp;earnings disruption has limited impact on the underlying productivity and therefore value of these assets.</p>
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<li><strong>Fishing quota</strong> —&nbsp;SAN holds c. 19% of New&nbsp;Zealand's&nbsp;total fishing quota.&nbsp;We estimate the value of&nbsp;SAN's&nbsp;quota share using the average open market transaction price for quota over the past ten years, excluding any data points that appear to be outliers. Our spot valuation range for&nbsp;SAN's&nbsp;quota holdings is NZ$5.89/share&nbsp;to NZ$6.68/share.</li>
<li><strong>Marine farms</strong> —&nbsp;SAN's&nbsp;marine licences are generally granted on a 25 year basis, with the likelihood of renewal subject to the continual suitability of consent conditions. With no active markets for marine consents, we use comparable company and transaction&nbsp;analysis to reach our spot valuation of NZ$2.08/share.</li>
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<p>We recognise the inherent issues in quota and marine farm license valuation techniques (limited active market, ownership constraints, convoluted nature of transactions, etc.), and therefore do not include these methods in our formal SAN valuation. Instead we suggest investors use these valuations as a reference point.</p>
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<h3>Short-term earnings suppressed, long-term asset productivity intact with growth&nbsp;optionality</h3>
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<p>The collapse of the foodservice channel, amid COVID-19 disruption, has materially weighed on short-term earnings. The demand recovery path is highly uncertain, and SAN is actively targeting redeployment of volume into retail channels. We expect earnings are likely to remain under pressure until we see a normalisation of the food supply channels. However, recent market disruption has limited impact on the underlying productivity and therefore value of its assets.​​​​​​​ In addition SAN offers attractive medium-term earnings growth should it execute on its value add strategy with longer-term optionality from additional aquaculture volume opportunities, in our view.​​​​​​​</p>
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<div><strong>Guy Hooper</strong></div>
<div><a href="mailto:guy.hooper@forsythbarr.co.nz" target="_blank" rel="noopener">guy.hooper@forsythbarr.co.nz</a></div>
<div>+64 4 495 5255</div>
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Sanford An Alternative Valuation&nbsp;

OUTPERFORM
Sanford (SAN) provides investors exposure to a series of unique, quasi-property assets, in its significant fishing quota holdings and extensive marine farm licences. SAN's share price has seen a material de-rating through 2020 as the company attempts to navigate COVID-19 headwinds. Whilst news flow is expected to remain negative in the short-term, we view SAN's share price as approaching an asset backed support level (book value of quota &amp; licenses NZ$5.21/share) and therefore see an attractive entry point. We estimate a market sum of the parts valuation of SAN's quota and marine farms is NZ$8.37/share, based on a mixture of market transactions and comparable values. ​​​​​​​At the current market price, investors are receiving the aquaculture assets for free.


Underlying asset value provides downside support


SAN's&nbsp;quota holdings and extensive marine farm interests provide value support&nbsp;in our view. Recent&nbsp;earnings disruption has limited impact on the underlying productivity and therefore value of these assets.

Fishing quota —&nbsp;SAN holds c. 19% of New&nbsp;Zealand's&nbsp;total fishing quota.&nbsp;We estimate the value of&nbsp;SAN's&nbsp;quota share using the average open market transaction price for quota over the past ten years, excluding any data points that appear to be outliers. Our spot valuation range for&nbsp;SAN's&nbsp;quota holdings is NZ$5.89/share&nbsp;to NZ$6.68/share.
Marine farms —&nbsp;SAN's&nbsp;marine licences are generally granted on a 25 year basis, with the likelihood of renewal subject to the continual suitability of consent conditions. With no active markets for marine consents, we use comparable company and transaction&nbsp;analysis to reach our spot valuation of NZ$2.08/share.

We recognise the inherent issues in quota and marine farm license valuation techniques (limited active market, ownership constraints, convoluted nature of transactions, etc.), and therefore do not include these methods in our formal SAN valuation. Instead we suggest investors use these valuations as a reference point.


Short-term earnings suppressed, long-term asset productivity intact with growth&nbsp;optionality


The collapse of the foodservice channel, amid COVID-19 disruption, has materially weighed on short-term earnings. The demand recovery path is highly uncertain, and SAN is actively targeting redeployment of volume into retail channels. We expect earnings are likely to remain under pressure until we see a normalisation of the food supply channels. However, recent market disruption has limited impact on the underlying productivity and therefore value of its assets.​​​​​​​ In addition SAN offers attractive medium-term earnings growth should it execute on its value add strategy with longer-term optionality from additional aquaculture volume opportunities, in our view.​​​​​​​




Guy Hooper
guy.hooper@forsythbarr.co.nz
+64 4 495 5255




Sanford Limited

Sanford: An Alternative Valuation