SHARES: Is Costa Group Due For A Rebound?

Costa Group (CGC.AX), Australia's largest grower of fresh fruit and vegetables, are an ASX 200 listed company who are principally engaged in horticulture within Australia undertaking activities that include the production, marketing, export, warehousing and licensing of selected fruits. The business is segmented into three parts; Produce, Farms & Logistics, and International. The first segment, Produce, contains the production of mushrooms, berries, tomatoes, citrus and avocado; and generated ~A$450m, the lion's share of revenue in 1H results to June 2019. Farms & Logistics incorporates marketing activities and operations. International includes farming operations in Morocco and China in addition to royalty income. The combined latter two contributed 23% to the latest revenue results. 
 

Costa Group's operations and economics have been negatively impacted by the persistence of Australia's drought, high water prices and lower harvest yields. The share price as a consequence is down 62% year-to-date or 68% if measured from all-time highs seen in the middle of 2018. The company recently pushed through a $176m equity raising to combat some of these problems. Citigroup downgraded CGC to A$2.90 from A$4.20. Costa are positioned as the 16th most shorted stock on the ASX as it stands.
 

Technically, CGC support to the downside sits around A$2.38, marginally lower than current spot at A$2.65, while all-time lows haven't been seen since Q3 2015 when the stock was trading at A$1.64. Arguably, business fundamentals haven't completely deteriorated yet despite uncertainties and Costa Group could prove a handy medium-term to long-term pick for those searching for value. The latest equity capital raising should help relieve some debt pressure. 

Source: Eikon