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Costa Group share price rebounds after avo smashing

The Costa Group Holdings Ltd (ASX: CGC) share price is up 1% or 4 cents to $4.56 today, after losing almost 40% of its value yesterday in some relief for shareholders after the fruit and vegetables producer issued a shock profit downgrade.

Costa Group now expects flat net profit growth for financial year 2019 compared to previous guidance for low double digit profit growth that it maintained at its AGM less than two months ago on November 22.

Management blamed the sudden change in fortune on “subdued demand” across the berry, avocado, and tomato categories over December 2018.

Furthermore, it also flagged that trading conditions in January were weaker than expected, with investments in its African Blue and Monsarto mushroom business also combining to drag down profit for FY 2019.

As at June 30 2018 the business had net debt of $176.2 million on 1.2x long term EBITDA, with much of the debt due to the additional $68 million investment in November 2017 to acquire Moroccan blueberry grower African Blue.

The stock could remain volatile until February 2018, when management will report its half-year financial results and potentially guide further on trading conditions.

Motley Fool contributor Tom Richardson 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 Scott Phillips.

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