Costa (ASX: CGC) shares are turning sour after the company held its annual general meeting (AGM). The share price is currently down 4%.
What is Costa?
Costa is Australia’s largest horticultural business. It produces glasshouse tomatoes, berries, avocados, mushrooms and citrus fruit. It has over 4,500 planted hectares of farmland, 30 hectares of glasshouse facilities and seven mushroom growing facilities across Australia. Costa also has international interests, with majority-owned joint ventures covering six blueberry farms in Morocco and three berry farms in China.
Costa’s AGM
Firstly, the agricultural company reminded investors of its underlying profit result despite the difficult conditions it’s had to deal with recently. The company has had to deal with drought, fruit flies and crumbly berries. One of its farms was affected by fires.
The company also announced the retirement of CEO Harry Debney. He’s going to retire within the next 9 months, though he’s also willing to make himself available in a reduced capacity after that point.
How the different segments are performing
Costa continues to invest. It’s trying to create a new range of blueberries suited to low latitude environments including China and Morocco. It’s also expanding its premium Arana variety.
Citrus remains a strong performer and new automation technology has been installed in a warehouse.
Continuing tree maturity will help the volume growth and tray volumes increase. It’s still targeting a production target of 2 million. Export opportunities are opening up.
The Monarto mushroom facility expansion will be important for that category.
In Morocco it’s trying to expand its blueberry growing season and in China blueberries are “proving highly popular”.
The company isn’t providing guidance, particularly due to COVID-19. But the company seems to be seeing better conditions, with higher than average rainfall. There is “excellent water security” across all sites.
Costa could soon see a rebound of earnings and the share price if the good conditions continue, but you have to be prepared for cyclical ups and downs. I’d consider making a relatively small buy today. But I’d prefer Bubs (ASX: BUB) for a long term food play.
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Disclosure: At the time of writing, Jaz doesn’t own shares in any of the businesses mentioned.
