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Is Costa Group’s share price decline cyclical or structural?

12062019_Costa Group

Is Costa Group’s share price decline cyclical or structural?

One of the more significant de-rating stories over the past 12 months has been that of fruit and vegetable grower Costa Group (ASX:CGC), which has had to issue two earnings downgrades over this period due to a variety of weaker pricing and agricultural-related issues.

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Joseph is a Senior Analyst at Montgomery Investment Management. Joseph has twelve years’ experience in equities research, funds management and M&A. Before joining Montgomery, he was a Senior Analyst at Colonial First State Global Asset Management responsible for coverage of resources, energy, infrastructure and industrials sectors. Joseph’s prior experience includes roles in equities research at JP Morgan and at Ellerston Capital.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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3 Comments

  1. hi Joseph, thkaks for the artcile. What I understand is the rerating of the share price is due to the cyclical nature than structutral. Waht is your take on value of the share is it in the buy zone?

    • Hi San,
      There are certainly cyclical elements of the share price decline – however the nature of its business means Costa faces a more volatile earnings profile in any given year due to the impact of agricultural factors outside of their control. As I have tried to outline in the article, the market’s confidence in paying a higher multiple for this earnings stream and future growth has taken a hit – at least temporarily – although that’s not to say the collective confidence can’t / won’t return in future.

      While I am unable to give a recommendation, the company is in an interesting position as it edges closer to harvesting the increased production from its years of investment (mushrooms, international berries, avocados, tomatos) – assuming they control the “controllables”.

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