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DnB analysts: Atlantic Sapphire's project has 40% chance of success

New equity reduces financial risk for the firm, but company's ambitious outlook still raises a lot of questions.

Analysts at DnB Markets say Atlantic Sapphire's recent $90 million (€79.5 million) capital raise and its ambitious new strategic plan give the company's share price room to grow on the Oslo Merkur market, but gives the project a 40 percent chance of reaching its goals.

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DnB analysts set a price target of NOK 150 (€15/$18), but remain cautious about the company given the risks. The company's current share price hovers at around NOK 102 (€ 10.2/$12.2), putting the company's market cap at around NOK 7.3 billion (€730 million/$876 million).

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Atlantic Sapphire recently revised its production estimates for its US and Denmark operations, projecting a harvest of 220,000 metric tons of salmon by 2031, which would make it the second-largest salmon producer in the world. The output would give Atlantic Sapphire 19 percent of the US salmon market, and would mean the group would account for 34 percent of the total growth in salmon consumption during the period.

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DnB highlighted a range of potential risks from the project, including potentially lower-than-expected water quality, lower-than-projected salmon prices, and design and production challenges that could render the facility "useless for salmon production."

That said, analysts said the cost overruns of between $112 million and $170 million (€99 million/€150.2 million) are "acceptable for such a project."

"Atlantic Sapphire is the most advanced land-based salmon farming company globally in our view," analysts wrote. "We do not see the risk as binary; hence we are comfortable with our 40 percent probability of success."

In addition, DnB analysts remain bullish on land-based salmon, and in particular Atlantic Sapphire's advantages over conventional production.

"While many competitors are limited by regulations and biology, we believe Atlantic Sapphire faces fewer obstacles in its quest for growth," analysts wrote.

DnB was among the managers in the May share issue.

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