Grieg needs more capital, analyst says

Grieg Seafood has taken a buffeting from the financial commentators in Norway over the last few days, with one warning that the company risks running out of cash within the next eight months.

Shares initially fell by 11% after Carnegie Investment Bank analyst Lars Konrad Johnsen said the company needed a share issue to raise least a billion kroner, and possibly two billion, to get through the second half of this year.

The shares later rallied after the company published a first quarter trading update showing higher than expected harvest volumes. The Q1 total is now 13,600 tonnes, more than 2,000 tonnes up on earlier predictions. This is broken down as 5,300 tonnes coming from Rogoland in southern Norway, 7,400 tonnes from Finnmark in the north of the country and 900 tonnes from British Columbia, Canada.

The figure does not include salmon output from Shetland because it is classified as a business “held for sale”. Grieg announced last November that it planned to sell its UK business, but so far it has not said  whether it has received any serious offers. There may be some indication on progress – or the lack of it – when the full first quarter results are published next month.

But it was Johnsen’s bleak assessment last week which raised more than a few eyebrows.  He predicted outflows to result from issues such as challenging biology, capital building and investments. The rising price of salmon, which is gradually feeding into the sector, could help,  but it may not be enough. Johnsen said the company needed a new capital structure and, until that happens, its shares should be avoided.

Analysts remain split, however, over the group’s need for more capital.  DNB Markets said that while the company had disappointed for some time, the higher harvest prediction and lower than expected costs per kilo suggested there was upside potential if Grieg can convince markets it is going in the right direction.

Other analysts suggest that a successful sale of Shetland (thought to be worth at least £120m) would help give Grieg the financial injection it badly needs. The brokerage house Kepler Cheuvreux thinks the group will  have adequate liquidity even if Shetland is not sold this year.