Costa Group Holdings Ltd, Australia’s leading grower, packer, and marketer of fresh fruit and vegetables, saw its stock price surging 6.7% on September 29, 2017 touching close to its 52-week high price at the back of positive sentiments in the market, while there is no specific news from the group. The stock has surged about 50.3% this year to date (as at September 28, 2017).

The group found support from its healthy trading outcome wherein all produce categories exceeded their respective targets. CGC’s FY17 NPAT before SGARA and material items of $60.7m witnessed 37.3% growth over FY2016 while revenue was up 10.7% and EBITDA before SGARA and material items surged 29.4%.CGC’s earnings were driven by outstanding domestic and international berry growth (with 55% increase in blueberry production on FY2016), excellent citrus performance and recovery in the tomato market. While demand for mushrooms had been strong, raspberry production was impacted by adverse weather conditions in Tasmania, which led to reduced yield and quality.

Diverse nature of the portfolio and acquisition in avocado segment (Avocado Ridge acquired in January 2017) have added to the growth. The group has also been doing well on its international front with a 47.2% increase on transacted sales over FY16. China operations achieved a modest profit in its first full year of berry farming while African Blue saw a productive year with increased sales volume of circa 50%.

International Segment’s Metrics (Source: Company Reports)

The group has also been able to decrease its net leverage while cash flow generation and balance sheet position stay robust. The debt facilities have been refinanced with increase of facility size to $350 million. Costa has also raised its full year FY2017 dividend by 22% over FY16.The group has recently issued about 1,088,597 options under its FY18 long term incentive plan. CGC will be conducting its AGM on November 16, 2017.

The group’s efforts on expansion and upgrade of the Devonport Tasmania Berry Distribution Centre are expected to reap benefits in the coming period while acquisition of the Lankester avocado is said to be earnings accretive in FY18. These coupled with other domestic and international growth programmes will provide momentum going forward. CGC has also indicated to keep on targeting early double digit annual earnings growth over a 3 to 5-year period, for future performance. However, given that the stock has already run-up quite a bit and the group now expects 10% profit growth pre SGARA in FY18, we put a “Hold” on the stock at the current price of $ 5.58

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.