Salmon farmer and retailer Tassal Group Limited (ASX: TGR) climbed 5.6% to $3.30 in trade today after announcing it has inked salmon supply deals with supermarket operators Aldi and Woolworths Limited (ASX: WOW).
Tassal has extended its supply agreement with Woolworths for a further three years from October 1 2015, while the Aldi deal is for a 12-month period from 1 October 2015. Notably both agreements will leverage Tassal's newly acquired De Costi seafood distribution business to presumably harness supply chain and distribution efficiencies.
Tassal also stated that the Aldi deal will replace the supply of imported salmon which looks vindication for the group's strategy of focusing on domestic supply rather than competing in overseas markets. Aldi probably imports the majority of its farmed salmon from Norwegian suppliers, but a lower Australian dollar has likely helped Tassal win an important new sales agreement.
Global salmon prices have reportedly been under pressure in 2015, which is an issue Tassal's archrival, Huon Acquaculture Group Ltd (ASX: HUO), blamed on a recent profit downgrade. Investor nervousness over this and a proposed Greens party inquiry into the environmental sustainability of the Tasmanian salmon industry has seen Tassal stock fall around 16 per cent in 2015.
The Greens senate inquiry into what is already a heavily regulated industry looks of questionable worth, although until its consequences are known risks remain around the potential outcomes. Both Tassal and Huon do have several tailwinds as per capita demand in Australia for salmon increases and the limited farming areas in Tasmania's cold waters provide high barriers to entry.
In my opinion both Aldi and Huon look reasonable long-term growth bets and both now trade on reasonable valuations. Although there might be some businesses with even more eye-watering growth potential…
