Costa (ASX:CGC) Reports – Will Its Share Price Shrivel?

Costa Group Holdings Ltd (ASX: CGC) has released its 2019 half year result to investors this morning, will its share price shrivel?

Costa is Australia’s largest horticultural business. The company produces glasshouse berries, tomatoes, mushrooms, avocados, and citrus fruit. It has over 4,500 planted hectares of farmland, 30 hectares of glasshouse facilities and seven mushroom growing facilities across Australia. Costa also has international interests, with majority owned joint ventures covering six blueberry farms in Morocco and three berry farms in China.

What Did Costa Group Report?

The company reported that its revenue increased by 11.8% to $573 million.

Costa said that the trading environment across tomatoes, avocados and berries have been favourable with the outlook for the 2019 citrus season strong, albeit later in timing.

However, there were unfavourable conditions during the Moroccan blueberry season, low mushroom demand, poorer raspberry quality and the impact of citrus water costs and fruit flies has culminated in a difficult first half.

That’s why EBITDA before SGARA (the change in value of plants), leasing and material items fell 8.4% to $82.4 million.

Net profit after tax, but before SGARA and leasing, dropped 15% to $40.9 million and statutory net profit increased 1% to $41 million. Market consensus expectations were for a net profit of $44.1 million, so Costa missed the mark in that regard.

Costa CEO Harry Debney said: “At the half year, the business was tracking broadly in line with the lower end of the revised target range outlined at the company’s 30th May AGM. The second half of the 2019 result will be supported by a strong citrus crop with 75% to be harvested from July to November.”

Dividend Cut

The Costa Board decided to decrease the dividend to 3.5 cents per share due to the major growth initiatives that the company is investing in.

Is It Time To Buy Costa Shares?

I wouldn’t be surprised to see the share price fall in response to this report based on the weaker performance of some categories and missing market expectations.

However, the company is investing heavily in Australia, China and Morocco to grow its total produce capabilities, improve its plantings and increase efficiencies.

Management provided quite cautious guidance for the rest of the year, but it’s fairly unlikely these headwinds will continue for the long term, so sometime in 2019 could be an opportunistic time to buy this seemingly cyclical share.

However, I’d understand if you didn’t want to ride through the highs and lows.

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Disclosure: Jaz owns shares of Costa Group at the time of writing, but this could change at any time.

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