Huon Aquaculture Group Ltd (ASX:HUO) – Crouching Tiger Hidden Gems

Who to believe? Tassal or Huon?

Controversy is raging over which Tasmania Salmon producer is telling the truth after the 4 corners did a no holes barred look at salmon farming in the apple isle. If you missed the program it can be viewed here.

First let me start off this article by being open and transparent that I own Tassal Group Limited (ASX:TGR) I bought into the company after listening to the current CEO Mat Ryan speak about how the company had transformed and the manner in which it not only produced the salmon in a sustainable way but he chose to keep jobs in Tasmania for the local community. His passion and understanding of salmon farming impressed me the most.

Now don’t get me wrong I am not some greenie or a particularly ethical investor, I will only invest if I believe there is money to be made. I also have an inherent mistrust of all agricultural stocks knowing they are very much prone to disruption by adverse weather conditions.

When researching the company I had become aware how susceptible salmon as a species were to warm water so my first thoughts were how climate change and in particular warming seas would affect the industry. To be honest I thought Tasmania is so cold it wouldn’t be an issue but I quickly found out this was one of the issues I didn’t understand. Fortunately for me Tassal had just gone through a warm water spell and I was able to learn how the salmon harvest had been affected via slower growth and what methods Tassal had developed to counteract this problem. I won’t go into details here by they had in fact developed a unique spray system to maintain the temperature within their fish pods.

Now let’s move forward to the 4 corners program which discussed overstocking of the Macquarie Harbour in Tasmania. Firstly we should remember that this is not a new issue just last year a federal inquiry was conducted into this very issue. You can find the full report here. http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Environment_and_Communications/Fin-Fish/Report

The inquiry chairman wrote

“environmental concerns raised were not supported by expert advice and objective scientific data”

“The evidence provided to the committee about the impacts of the industry in no way justifies extra bureaucratic measures or more onerous regulation,” she said.

“The industry is known around the world for having world’s best environmental practice and is regularly contacted by international companies for advice on sustainability measures.”

So the question must be asked why is the CEO of Huon is claiming salmon farming is not sustainable in Macquarie Harbour while Tassal’s CEO holds the exact opposite view.

To try and solve this disconnect I looked at the prospective results of each company for the last financial year knowing that both companies were farming the same area and both had to cope with the warming waters from the 2016 elnino event. I was surprised to find that While Tassal coped quite well with the conditions Huon had been significantly affected financially. Once again I will not go into detail but Houn chose to harvest early where as Tassal selectively thinned their stocks. Tassal has also spent significant resources selectively breeding salmon resistant to warmer conditions. Once again I need to highlight the fact I am not aware of or if a selective breeding program is also carried out by Huon. I note the four corners program looked closely at Tassals farm set up but failed to do the same for Huon.

So keep all of these provisions in mind if I was a detective which I am not and working on a CSI case I would say the motives for such an accusation may well come from either a sincere desire to protect the environment or from financial perspective where one market participant lays blame for their poor financial performance at the feet of a superior competitor.

If this is the case then we would need to understand who is likely to benefit the most financially from restricting salmon output which we assume would increase salmon prices to consumers.

To be honest I have not delved deep enough to make a decision either way and that is not my intension in this article. My purpose is to encourage investors to not blindly believe whatever news article they read or TV show they watch but to seek out both sides of the investing story.

It is very easy for naïve inexperienced investors to jump to conclusions that suit their own agendas or fears rather than rationally approaching a subject.

My question for the 4 corners program would be

Why was the motives for Huon accusations not explored?

Why was research presented to a parliamentary inquiry ignored?

Why was the Huon farming practices not put under scrunity?

Why did you disproportionally spend time presenting Houn’s case?

Why was TGR not told about the content of the story before it was put to air?

Will you be running a program on the research you failed to mention in the original program?

Tips for New Investors

Ethical investing is a choice that should be made by each investor. There is no right or wrong. What may be ethical to you may not be ethical to another investor.

If you chose to overlay your own ethics onto your investment decisions you need to be aware not to falsely arrive at conclusions because of your ethical bias.

Tag: Huon Aquaculture Group Ltd (ASX:HUO)

Tassal Group Limited (ASX:TGR) or Huon Aquaculture Group Ltd (ASX:HUO)? Fish slaps at 30 paces!