Costa Group Holdings Limited

Section 1: Company Overview and Fundamentals Insights

1.1 Company Overview

Costa Group Holdings Limited (ASX: CGC) is an Australia-based horticulture company. CGC is engaged in growing, packing, and marketing fresh fruits and vegetables.

 1.2 The Key Positives, Negatives, Investment Highlights, and Risks

1.3 Top 10 Shareholders: The top 10 shareholders together form ~30.59% of the total shareholding. Perpetual Investment Management Limited and State Street Global Advisors Australia Ltd. are holding a maximum stake in the company at ~10.52% and ~4.45%, respectively.

1.4 Key Metrics: The company has reported a high EBITDA margin of ~15.0% in FY22 compared to 12.0% of the industry median. Further, CGC reported a high quick ratio in FY22, around 0.89x, compared to 0.84x of the industry median. Below is captured the trend of the gross margin and current ratio:

Section 2: Business Updates, Financial and Operational Highlights

2.1 Recent Updates:

2.2 Results Highlights of FY22 (for the period ended 1 January 2023): During FY22, the company reported NPAT-S (before material items) of AUD 30.2mn, which decreased by AUD 33.8mn on a YoY basis, due to higher input cost inflation over FY22. However, the impact of cost inflation is expected to moderate in FY23 due to the high focus on cost-reducing initiatives and harvest yields.

2.3 Future Outlook: The company expects to deliver improved performance in FY23, FY24 and FY25 provided if the weather conditions remains normal across its farming portfolio.

2.4 Dividend History: The company reported a final dividend of AU 5.0 cents per share which was 40% franked and the FY22 dividend stood at ~AU 9.0 cents per share.   

Section 3: Key Risks and Outlook:

Section 4: Stock Recommendation Summary

4.1 Price Performance and Technical Summary

The stock has witnessed a decline of ~4.83% in 3 months and over the last 6 months, it has decreased by ~3.03%. The stock has a 52-week low and 52-week high of AUD 1.930 and AUD 3.455, respectively and is currently trading slightly below the average of a 52-week high-low average.

4.2 Fundamental Valuation

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is neither an indicator nor a guarantee of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is March 6, 2023. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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