Costa share price in focus following half year results

The Costa Group Holdings Ltd (ASX:CGC) share price will be on watch on Friday following the release of its half year update…

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Costa Group Holdings Ltd (ASX: CGC) share price will be in focus this morning following the release of the horticulture company's half year results.

How did Costa perform in the first half?

Costa was finally back on form during the first half of FY 2020 and delivered solid revenue and profit growth.

For the six months ended 28 June 2020, Costa posted revenue of $612.4 million. This was an increase of 6.8% on the prior corresponding period.

Thanks largely to a strong performance from its international business, which offset weakness in its Produce segment, Costa's earnings before interest, tax, depreciation, and amortisation before self-generating and regenerating assets, leasing, and material items (EBITDA–SL) grew at a quicker rate.

Costa reported first half EBITDA–SL of $93.7 million, up 13.7% from $82.4 million during the prior corresponding period. This comprises EBITDA-SL of $62.1 million from its International segment (up 98%), EBITDA-SL of $28.6 million from the Produce segment (down 40.5%), and EBITDA-SL of $3.1 million from the Farms and Logistics segment (up 1.4%).

As a comparison, according to a note out of Goldman Sachs, it was expecting EBITDA-SL to come in at $108 million for the half.

On the bottom line, Costa reported a net profit after tax–SL of $45.8 million. This is an increase of 12% on the prior corresponding period.

In light of this return to form and a better than expected net debt leverage of 1.66x, the Costa board has declared a fully franked 4 cents per share interim dividend.

Management commentary.

Costa Group's CEO, Harry Debney, was pleased with the company's performance in FY 2020.

He said: "Our international segment performed strongly over the half, with significant improvement in EBITDASL, reflected in growth of 98% compared to the first half CY19. The major northern Morocco harvest cycle returned to normal timing and yield from all of our China farms was exceptional."

"The continued impact of CY19 adverse weather and drought conditions affected our first half CY20 results for our Australian operations. However, these historical conditions should have no material impact in 2HCY20 or beyond and there is broad based forward momentum in demand and pricing over our Australian portfolio leading into the second half of CY20," he added.

The chief executive notes that its citrus orchards are performing well in respect to size and yield, despite facing a number of challenges.

He commented: "We have been impressed with the relative performance of our citrus orchards in terms of fruit size and yield, especially given the circumstances where industry harvest volumes have been impacted due to previous heat events. Also, strong export and domestic demand, together with improved pricing levels are expected to continue to season end."

Outlook.

No guidance was given for the full year, but management appears positive on its prospects.

It notes that Australian market conditions across its portfolio are showing sizeable improvement and expects it to drive increased earnings into the second half.

It also advised that strong export and domestic demand and pricing in citrus, together with increased second half harvest timing, should be supportive of an improved outcome.

Management concluded: "Over the next three years given all major capex will be in place, this along with continued innovation will be the platform to drive quality, yield growth and shareholder returns. This is supported by strong balance sheet and cashflow generation, placing the company in a position to continue growth as a low cost producer, while capitalising on opportunities as they arise."

Motley Fool contributor James Mickleboro 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.

More on Share Market News

Animation of a man measuring a percentage sign, symbolising rising interest rates.
Share Market News

Here's when Westpac says the RBA will now cut interest rates

Will borrowers need to wait until the middle of next year for relief? Let's find out.

Read more »

Boys making faces and flexing.
Opinions

3 ASX 300 shares to buy and hold for the long run

I believe these stocks have loads of growth potential.

Read more »

Young girl drinking milk showing off muscles.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a great end to the trading week for ASX investors today.

Read more »

Hands reaching high for a trophy with a sunset in the background.
Record Highs

The ASX 200 Index is on its way to another all-time high today. Here's why

These blue chip stocks are driving the index towards a new record today...

Read more »

Group of friends trading stocks on their phones. symbolising the 3 most traded ASX 200 shares today
Share Market News

3 ASX mining stocks topping the most-traded list in October

Chinese stimulus news and company announcements likely contributed to the higher trading activity.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Share Gainers

3 ASX 200 stocks smashing the benchmark this week

These three ASX 200 stocks are leading the charge this week. Here’s how.

Read more »

Two people tired and resting after sports race.
Broker Notes

Fundie rates 2 ASX 200 stocks in short-term pain but with long-term gain potential

Blackwattle Investment Partners sees these 2 ASX 200 stocks as worthy of a buy and hold strategy.

Read more »

A young woman holding her phone smiles broadly and looks excited, after receiving good news.
Share Gainers

Why A2 Milk, EOS, GQG, and Mineral Resources shares are racing higher today

These shares are ending the week strongly. But why?

Read more »