Last week was a dramatic week for some of the most anticipated full year reports, with many big names falling behind expectations. Here are some of the big movers you should know about.
Costa Group Holdings (ASX: CGC)
The market was unambiguously disappointed by Costa Group’s half year performance, slashing the Costa Group share price down by 22% to $2.97 (at the time of writing). With its shares trading at a price-to-earnings (P/E) of 29 prior to the announcement, the group’s revenue growth of 11.8% and net profit after tax (NPAT) growth of 5.5% left much to be desired. The company’s underlying figures, not accounting for asset revaluations, were even worse – EBITDA-SL fell 8.4%, whilst NPAT-SL fell by 15%.
Costa Group’s success in the tomatoes and citrus segments were offset by wholesale pricing issues in mushrooms and avocados, and its African Blue subsidiary significantly underperformed expectations, despite harvest volumes being up 20% on the prior year. The outlook for Costa remains uncertain, and it’s debated whether this half year’s poor performance is due to unfortunate circumstance or reflective of a larger, fundamental issue. Management has not given earnings guidance for the full calendar year 2019.
A2 Milk Company Ltd (ASX: A2M)
Shareholders in this market fared no better, despite the company reporting growing revenues by 41.4% to NZ$1304.5 million, and net profit by 47% to NZ$413.6 million. But with the a2 Milk share price down more than 15% since the announcement, it appears this growth was not enough to outpace the market’s lofty expectations.
Whilst these were solid overall results, they are ultimately a lagging indicator of the company’s prospects, and investors are beginning to see the limitations of its growth. a2 Milk has faced difficulty in the UK market, and an escalating trade war could potentially slow down the infant formula machine that drives 81% of the company’s revenues. A marketing investment of NZ$135.3 million (or 10.4% of revenues) is expected in FY20, but even then, investors don’t appear too confident that a2 Milk will be able to sustain the phenomenal growth it has had in the past.
BWX Limited (ASX: BWX)
One company which came as a pleasant surprise was BWX, with the company’s new CEO Dave Fenlon optimistic about its “clear strategic roadmap to deliver a turnaround performance”. Whilst the group’s full year revenue of $149.5 million was up less than 0.01% on FY18, the second half of the year did highlight a tremendous 19.9% improvement on 1H19. Given the company’s tumultuous year of management fiascos, it came as little surprise that BWX’s underlying net profit after tax of $11 million was down 55% on the prior period.
The BWX share price is up more than 21% to $2.89 since the announcement last Friday, with the market ecstatic about the growth opportunities in FY20. BWX forecasts revenue growth of 20–25% and EBITDA growth of 25-35% in FY20; the Andalou Naturals brand leading the way with its recent success in both the USA Whole Foods Market and Priceline Australia.
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Motley Fool contributor Saran Likitkunawong owns shares of A2 Milk and Costa Group Holdings. The Motley Fool Australia owns shares of and has recommended BWX Limited and COSTA GRP FPO. The Motley Fool Australia owns shares of A2 Milk. 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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