Costa Group Holdings Ltd

CGC Details

Opportunities from Berry growth: Costa Group Holdings Ltd.’s (ASX: CGC) stock fell 2.3% on September 13, 2017 as the group traded ex-dividend. For FY17, CGC reported 10.7% (year on year) revenue growth at $909.1m, while posting 29.4% growth in EBITDA at $115.2m (before SGARA and material items). NPAT before SGARA and material items increased by 37.3% to $60.7m while statutory NPAT increased to $57.7m, compared to $25.3m in FY2016. The produce segment delivered a solid result by growing at 9.4% to $786.2 million with total transacted sales of more than $1 billion and, while CF&L revenue growth was up 2.4% on FY2016. During the year, domestic and international berry growth witnessed excellent citrus performance and recovery in the tomato market contributing to year on year earnings growth. Berry category growth remains high with a 55% increase in blueberry production on FY2016, for which the Corindi New South Wales farm accounted for a significant portion of the increase. Additionally, new volume came from the expansion of plantings in Western Australia and Far North Queensland, and the Lebrina, Tasmania farm, acquired in August 2016. The international segment saw a 47.2% increase on transacted sales compared to FY2016 and now encompasses operations in Morocco (African Blue), China and Africa, and is becoming an important part of business and growth plans. Notably, the Coles Jandakot Western Australia Distribution Centre contract was renewed through to September 2023. The stock has moved up 85.4% in the last one year while it is up 21.5% in the past six months (as on September 12, 2017), owing to sustained financial performance and increasing demand for the company’s food products. For FY18, the company expects to generate around a 10% NPAT pre SGARA and material items growth. We maintain a “Hold” recommendation on the stock at the current market price of $ 5.20

Graincorp Ltd

GNC Details

Simplifying business structure to improve customer experience: Graincorp Ltd.’s (ASX: GNC) stock plunged 4.6% on September 13, 2017 apparently at the back of the latest crop update from the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), according to which Australia’s winter crop production might face challenges owing to unfavourable conditions in key cropping regions. The winter production might drop by 39% to 36.3 million tonnes in year 2017-18. On the other hand, GNC is simplifying its business structure through the creation of a single Grains business unit from the existing Storage & Logistics and Marketing businesses. The company had been speaking with many grain growers and buyers to get the clearest possible understanding of their requirements to make its customer experience more consistent, to reflect the steady evolution of their needs since deregulation. The modern grower is sharply focused on marketing opportunities and maximising the value of their grain, while processors are becoming more demanding about the specific functional characteristics they require. Importantly, with these changes, GNC will be able to strategically target and create value opportunities for customers. As result of these changes, Group General Manager (Storage & Logistics), Neil Johns will leave GrainCorp and Klaus Pamminger will be appointed as Group General Manager (Grains). For FY17, the group had earlier stated to report EBITDA of $385 million-$425 million and underlying NPAT of $130 million-$160 million, driven by the record eastern Australian crop and continued solid performance from GrainCorp Malt. However, GNC is expected to face headwinds given the continuous pressure on margins, unfavourable foreign exchange movements and recent crop update.We maintain an “Expensive” recommendation on the stock at the current price of $ 8.16

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