Neptune Technologies is still a BUY, says Byron’s Loe

Byron Capital analyst Douglas Loe says the fire in Sherbrooke destroyed Neptune’s supply of krill oil, and it now has zero inventory for sale in the foreseeable future. While this impacts his near term outlook, his long term view of Neptune’s prospects remain unaltered.Last Thursday, a facility in Sherbrooke, Quebec owned by Neptune Technologies (TSX:NTB) exploded, killing three people and injuring eighteen more.

On Monday, Neptune CEO Henri Harland commented on the tragedy, which had become national news.

“Our hearts are greatly traumatized by this horrible catastrophe that will remain in our minds forever. Our thoughts are with our colleagues and their families,” he said, adding: “The strength of Neptune has been built on the commitment and dedication of our employees, and I am confident that this same resolve will allow us collectively to overcome this tragic event and rebound from it.”

Byron Capital analyst Douglas Loe issued an update on Neptune to clients today with a caveat. “What we describe below is not intended to distract from the human tragedy that Neptune team members and their families are enduring,” he said, “but we are nonetheless obliged to assimilate all information pertaining to stocks that we cover and once doing so, to render our views on valuation, as we will here.”

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Loe says the fire in Sherbrooke destroyed Neptune’s supply of krill oil, and it now has zero inventory for sale in the foreseeable future. While this impacts his near term outlook, his long term view of Neptune’s prospects remain unaltered. Loe says the global omega-3/krill oil nutraceutical market will remain strong, and Neptune will be a key player in the market. In today’s update to clients, Loe lowered his fiscal 2013 revenue estimate on Neptune from $44.8-million to $17.4-million and raised his estimate of the company’s losses from $.03 to $.11. These changes meant Loe lowered his one year target on the stock from $7.50 to $4, but the Byron Capital analyst maintained his BUY rating on Neptune.

At the Quebec manufacturing facility Neptune Technologies manufactured Krill oil. Krill are shrimplike crustaceans that are the primary food source of marine life such as salmon, whales and rockfish. Recently, fish oil from the tiny algae and plankton eaters has come to be prized as a dietary supplement for human consumption. A 2007 study in the Journal of the American College of Nutrition showed the oil, which is extremely high in omega 3, decreased inflammation and arthritic symptoms in cardiac and arthritis patients. Other studies showed it was effective in raising HDL, or “good” cholesterol, and lowering triglycerides. The company was planning an expansion at the plant that would have increased production capacity to 300 metric tonnes by the fourth quarter of fiscal 2013, and then to 500 metric tonnes by Q4, 2014.

Loe says there are a couple mitigating scenarios for Neptune. First, he believes the company will be able to source at least some krill oil for redistribution from other suppliers. Also, he says, it is safe to assume reconstruction of the plant will be funded by insurance policies Neptune has revealed it had in place. Loe believes the reconstruction should incur little incremental cost to the previously planned expansion.

Shares of Neptune Technologies remain halted.

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