Strengthening wholesale prices are underpinning Costa Group Holdings (CGC), a leading grower, packer and marketer of fresh fruit and vegetables.

Analysts at investment bank UBS say Costa has a favourable industry backdrop with overall wholesale price trends improving except for blueberries.

“Mushrooms have been particularly strong, with progressive improvement since July,” the analysts write in a note to clients.

“Outside of pricing, a concern has been a shortage of pickers – we believe this has not been an issue to date, with CGC’s geographic positioning a relative advantage.”

According to UBS, Raspberries were up 19% in the September quarter, mushrooms 34% and tomatoes 24%.

UBS has a Buy rating on Costa for three reasons:
– Improving earnings outlook underpinned by stronger demand for grocery near-term (increased at-home consumption) and more normal supply
– Improving balance sheet post last year’s capital raise, with growth projects ($75 million tomato glasshouse expansion, $7.5 million for additional water capacity)
– Attractive growth valuation.

Costa, in August announcing its half year results, says its Australian operations had recovered from the drought and weather challenges of late 2019 and the first half of 2020.

The company reported a 6.8% rise in revenue to $612.4 million for the half year to June 28. Profit was up 12% to $45.8 million.

Costa estimated the half year financial impact from drought at $15 million in tomato and berry categories.

In August the company said: “Labour needs have been met to date, including visa extensions for seasonal workers already in Australia. We expect to also meet labour needs in second half of CY20, assisted by restarting of Seasonal Worker Programme.”

“Crops recovered to full yield by May, with new Corindi (NSW) raspberry crops coming on stream from mid – August and blackberry crop from mid – October,” the company reported.