Costa caps $176m raising as ‘challenging’ year tipped for key crops

“We are in the best position in this industry to do so and are confident of building a stronger and more resilient company as a result,” he said.

But in a new note released just before the capital raise was completed, Citi analyst Craig Woolford gave a cautious assessment of Costa and cut his target price on its shares.

Any successful agribusiness must focus on long term strategies and value creation. We have faced many and varied challenges this year.

Harry Debney, Costa Group chief executive

“We’ve lowered our financial year 2020 estimated EBITDA (earnings before interest, tax, depreciation and amortisation) by 4 per cent to $127 million. We expect another challenging year in mushrooms, blueberries and citrus to hold the stock back.

“Medium-term, competition will ease as smaller players exit and EBITDA margins can rise. We reduce our target price to $2.80 from $2.90 given earnings downgrades,” he said.

Less than four weeks ago, the Citi analyst had cut his 12-month target price on Costa from $4.20 to $2.90.


Mr Woolford said mushrooms had been one of Costa’s largest and most lucrative categories but, given weaker prices, mushroom profitability “may have fallen by 30-40 per cent”, he said.

“Will pricing and profits recover? We think so, but it will take longer than 12 months given additional industry-wide supply in 2020,” he said.

Costa has faced many challenges in 2019 and has issued four profit warnings. It told the market at the end of October of its plans to raise $176 million to pay down debt and strengthen its balance sheet as it battled drought, high water prices and smaller, less lucrative harvests.


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