Costa Group Holdings Limited

CGC’s Revenues Rose YoY: Costa Group Holdings Limited (ASX: CGC) have ended FY 2018 by generating the revenues amounting to $1.0 billion which implies the rise on the YoY basis as in the previous year, the revenues were $909 million. The company has managed to demonstrate healthy CAGR of 10.8% in the total revenues in the period of last four years to FY 2018. With respect to the company’s Produce segment, the production of the Blueberry got a hit because of the lower yields.  With respect to the Berry, there were gains because of the initiatives related to the improvement of the costs. The technology coupled with higher scale has supported in terms of significant savings of the costs.

CGC’s Total Revenues (Source: Company Reports)

H1 FY 2019 To Be Impacted by Subdued Demand: On January 10, 2019, Costa Group Holdings Limited had published the trading update in which it highlighted the demand was muted with regards to avocado, berry as well as tomato during December 2018. The release also stated that the trading condition with respect to the present month was also below expectations. As a result of the unfavourable demand conditions, there has been a fall in the pricing with regards to the several product lines. As a result, the company had stated that there would be a fall in the forecasts in H1 FY 2019 as compared to previous guidance.

If the present conditions sustain, the above-mentioned factors, the short-term slippage with regards to Monarto mushroom facility upgrades commissioning in the South Australia, and additional costs because of the deployments like African Blue would impact the FY 2019 NPAT-S on the YoY basis and the growth would be primarily flat.

Stock Recommendation: On the daily chart of Costa Group Holdings Limited, Relative Strength Index or RSI has been applied on the daily chart and default values were considered for the purposes. As per the observation, the 14-day RSI has reached the oversold region which implies that there could soon be a rebound. Therefore, moving forward, the stock might witness an uptrend. On the other hand, the company had managed to witness a YoY rise in the key margins. In FY 2018, its gross margin stood at 68.0% which implies the YoY growth of 5%. Its EBITDA margin also improved from 10% in FY 2017 to 13.9% in FY 2018 reflecting an improvement of 3.9%. In the meantime, the share price has fallen 32.49% in the past three months and is trading at lower level. On the backdrop of the above-mentioned factors, we maintain our “Hold” recommendation on the stock at the current market price of A$4.640 per share (up 2.882% on January 11, 2019).

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