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Costa Group Holdings Ltd Releases H1 CY19 Results, Illustrating a Difficult First Half Of CY19

Jordan Baird

Jordan Baird is the head ASR Wealth Advisers client services desk and has been with the organisation since 2017. He first started investing in his early years. While he believes that investors should leave no stone unturned he has a particular interest in trading based on broad macroeconomic trends along with specific analysis of innovative up-and-coming companies.

Costa Group Holdings Ltd (ASX: CGC) is one of Australia's largest horticultural companies and a major supplier of produce to Australian food retailers.

Costa Group Holdings  F19 Results
(Sharecafe 2019).


What are the results from Costa Group’s H1 CY19?

Today (Friday 23rd of August 2019) Costa Group released its H1 CY19 annual results. The main points are as follows in Pre-IFRS16 terms:

  • Revenue for H1 CY19 is A$573.3 million, up by 11.8% from H1 CY18.
  • EBITDA-SL for H1 CY19 is A$82.4 million, down 8.4% from H1 CY18.
  • NPAT-SL for H1 CY19 is A$40.9 million, down 14.9% compared with H1 CY18 NPAT.
  • The interim dividend is 3.5 cents per share (fully franked).

Specific results on company segment operations are as follows:

  • Produce for Costa Group in H1 CY19 produced A$443.9 million in revenue, up 11.4% from H1 CY18.
  • Costa Farms & Logistics brought in revenue of A$72.9 million in H1 CY19, down 4.2% from H1 CY19.
  • International revenue from Costa Group was A$83.5 million, up 17.9% from H1 CY19.


What were the drivers of this result?

Main drivers of the negative result were difficult conditions in Morocco during the Blueberry season, dwindling mushroom demand, low quality raspberries, citrus water costs and fruit fly’s damaging crops.

Market conditions in berries and mushrooms were difficult, reducing the yield and quality of berries and mushrooms for H1 CY19.

Negative results were partially offset by berries, tomatoes and avocados, with the trading environment for these fruits being favourable.


What is the outlook for Costa Group?

Although H1 CY19 results were not favourable, H2 is building to be a more profitable period. The outlook is positive, with support from strong citrus crops, of which 75% will be harvested between July and November.

The trading environment for avocados and tomatoes will continue to improve into H2 CY19 yielding better results.

Expansion into China is on track to be achieved in a roll out plan by 2020, with further expansion planned for 2021. Expansion in Morocco into Agadir has been completed and will therefore provide earlier season production.

Uncertainties and challenges remain due to continued lower than expected pricing of mushrooms, raspberry crumble proving to be more notable and taking time to mitigate, and potential blueberry pricing pressure in light of substantially higher than anticipated estimated NSW blueberry industry crop, with some mitigation from Arana premium returns.

Whilst the H1 CY19 results have somewhat been in line with the lower end of the latest forecast, predicting and trading will remain challenging with potential further downside risk, depending on the impact of the above factors.


What is the market reaction?

The initial market reaction to Costa Group’s H1 CY19 results is negative. The current share price is trading at A$3.20 which represents a 15.57% decrease (11:30 am AEST).




This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

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ASR has no position in any of the stocks mentioned.

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