The strong run of the Costa Group Holdings Ltd (ASX: CGC) share price has continued today.
In early afternoon trade the shares of Australia's leading grower, packer, and marketer of fresh fruit and vegetables are up almost 7% to $5.26 following the release of strong full-year results.
Highlights include:
- Revenue increased 10.7% on FY 2016 to $909.1 million.
- EBITDA before SGARA and material items up 29.4% to $115.2 million.
- Net profit after tax before SGARA and material items increased 37.3% to $60.7 million.
- Net leverage decreased to 0.7x EBITDA before SGARA.
- Earnings per share of 18 cents.
- Final dividend of 7 cents per share, bringing its full-year dividend to 12 cents per share.
- Outlook: Approximately 10% NPAT pre SGARA and material items growth in FY 2018.
The main driver of the impressive result was the strong performance of its Produce segment. Segment revenue came in 9.4% higher at $786.2 million thanks to strong demand for its core produce.
A highlight was its Berry category which saw a 55% increase in blueberry production in FY 2017. Although blueberry pricing was down slightly year-on-year, this was more than offset by the significant increase in volume.
Complementing this was mushroom and citrus production and demand which remained strong during the year.
The only real disappointment was raspberry production which was impacted by cooler weather in Tasmania. This delayed the crop and reduced its overall yield and quality.
Elsewhere, the company's international business had a strong year and saw a 47.2% increase in transacted sales compared to FY 2016. The company's fledgling operations in China had a solid year and turned a small profit.
Is it time to invest?
Whilst I am a big fan of the company, I can't quite justify the premium its shares are trading at.
Based on this result Costa's shares are changing hands at 29x earnings. I think this is reasonably expensive for a company which has forecast 10% growth in net profit after tax before SGARA and material items in FY 2018.
Until its shares are priced at a more reasonable level, I would favour an investment in fellow agriculture business Tassal Group Limited (ASX: TGR) instead.
