Question of the Week

Questions of the Week

Co-founder of the Switzer Report
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Question 1: Costa Group (CGC) has been going through hard times with the drought and fruit fly. One day it will rain and spraying will help with the flies. The shares appear down at the moment and were not mentioned by Peter for 20 shares that may recover over the next year or so. Your thoughts, please?

Answer: In regard to Costa (CGC), I am a little wary. I like the company but maybe the recent earnings downgrade highlights the variability and challenges in agriculture – and suggests the company can’t command such a multiple. Even after the share price plummet, it is still trading on a multiple of 22.2x FY19 earnings and 18.5x FY20 earnings. Fruit fly impacting Australian citrus, crumbly raspberries, unseasonably warm weather leading to poor customer demand for mushrooms and issues with Moroccan blueberries were cited as reasons for the earning downgrade.

The brokers are marginally positive but also wary. 4 buys, 1 neutral and 1 sell recommendation and a consensus target price of $4.66, some 9.4% higher than today’s closing price of $4.28.

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