Why Costa Group Holdings Ltd just delivered a profit upgrade

Costa Group Holdings Ltd (ASX: CGC) today released its interim results, reporting higher revenue and earnings for the period. They were driven by strong performance in citrus and tomato categories and no major negative weather impact. Key figures from the announcement include:

  • Revenue from ordinary activities up 9.8% to $489.3 million
  • Statutory earnings up 315.8% to $66.2 million
  • Earnings before interest, tax, depreciation and amortisation (EBITDA) before self-generating and regenerating assets (SGARA) up 24.2% to $60.9 million
  • Net profit after tax (NPAT) before SGARA up 14.5% to $28.6 million
  • Fully-franked interim dividend of 5.0 cents per share, up 25%

Costa’s statutory earnings were sharply higher due to a one-off, non-cash gain of $40.1 million following the purchase of an additional 37% stake in African Blue in late November. That transaction gave Costa a controlling interest in the entity, and the group’s original 49% interest in African Blue has been revalued.

Earnings on a per share basis more than quadrupled to 20.73 cents per share, compared with 4.99 cents for the previous corresponding period. Excluding the one-off gain from the African Blue acquisition, basic earnings per share for the period would have been 9.08 cents per share.

Costa’s preferred measures of financial performance, EBITDA-SGARA and NPAT-SGARA, also rose significantly during the period as the company continues to benefit from the diversity of its asset base and risk management practices.

Citrus was the standout performer for the period, with strong export market demand absorbing all incremental volume. Costa’s tomato category also did well, partly due to optimisation of glasshouse configuration and planting schedules.

Berries and mushrooms were largely in-line with expectations, while Costa’s avocado segment will be boosted by the acquisition of Coastal Avocados in Northern NSW. This latest purchase will extend Costa’s production season from February to December and is expected to produce 300,000 trays per annum at maturity.


A full-year outlook was also provided as part of the results presentation, with management stating the portfolio has continued to perform well through January and February.

“Full year earnings will be more heavily weighted to the second half due to the timing of the avocado harvests and further growth of international operations”, and the company has forecast NPAT before SGARA and material item growth of 25% for FY2018, up from previous guidance which was for “at least 20%” growth.

Foolish takeaway

Costa has been a strong performer since listing on the ASX in 2015, and this half-year result looks no different. However, the current share price is too high for me to invest, given the traditional risk profile of agriculture businesses.

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Motley Fool contributor Ian Crane has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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