Australian (ASX) Stock Market Forum

CGC - Costa Group Holdings

ASX announcement yesterday
7/11/2019 3:40:55 PM 2
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Riverland weather event - preliminary impact assessment

The Age reports today
Costa flags hail storm hit as retail raising rolls on

Under pressure fresh food producer Costa Group has suffered another blow, with some of its citrus farms in South Australia being hit by a hail storm on Tuesday.

In a statement to the ASX shortly before the market closed on Thursday, Costa said that the storm could have a $3 million to $4 million impact on its net profit in calendar year 2020.

But the company, which is in the process of raising money from retail shareholders and recently raised $87 million from institutional investors, stressed that this estimate was based only on a preliminary assessment.

It also said it was possible that the storm would have no ultimate financial impact and that its overall portfolio could "counterbalance" any potential adverse impact.

"However, as the recently announced pro-rata entitlement offer is currently in progress, we believe that more fulsome disclosure of indicative information is appropriate at this stage," Costa said.

The company has not changed its 2020 forecast of a net profit of about $56.6 million.

Costa said there would be no impact on its nearly completed 2019 citrus harvest and no impact in 2021 was expected.

However, it said the storm could have "some impact on the quality of some of the crops which, if it eventuates, may have an impact on pricing in calendar year 2020".

Costa said a natural part of citrus growing included the process of "fruitlets" (which form the fruit), falling off the trees in early summer. The company expects most of the "fruitlets" that fall to be those damaged by hail, with a larger proportion of the undamaged fruit remaining on the trees.

In late October, Costa announced a $176 million capital raise to strengthen its balance sheet as it battled drought and other challenges.

Thursday Nov 7, Shares in Costa closed up 1.5 per cent at $2.79.
 
CGC has had a good recovery over the year having seen a low of $2.32 to closing close to the high of $4.16.

Extract from their half year results

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Chart looking good and hopefully has another run at the high of $4.16. Holding @ $3.91

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I am still holding but running out of patience with CGC. It has had a couple of good days since my buy and hit a high of $4.13 but closed today $4.01.

Today's announcement below FYI

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What we should do with CGC, is see if there's anything to learn from this recent price dump.

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Look good to me.

Market thought differently.

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I'm not going to comment on the business fundamentals. I know @galumay may as he's posted plenty of warnings in the past about CGC.

I'm always vary of trading agricultural companies because they're at the mercy of the weather.
Remember that cannabis company in the US that caught frostbite and is no longer listed?

Being a chart based trader I know that CGC has a checkered price chart history. Back in late 2018 and all through 2019 there were multiple gaps down after poor news. When I see three that's it for me. There were at least five on this chart during that period. FIVE!

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What we should do with CGC, is see if there's anything to learn from this recent price dump.

View attachment 125077 Look good to me.

Market thought differently.

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I assume that it’s the CY21 comments that the market got upset about; the market maybe wanted better news about domestic performance? Possibly also factoring in the dollar not being so positive for the international exports?

Decent size drop!
 
some collection from investment magazines on CGC. Trading 51 pc below the expectations on the fair value determined by simply wall street.
From the insider trading, it appears Lazard, Perpetual has been just working as a trader and one can question what is their value-based analysis.
Same day Lazard sold out to take profit and then bought the same day at a lower price (19 May).
If I follow their trades and make meaning out of them then I will win the lotto earlier.
In the earlier days, I was fascinated by CGC projection but now disillusioned and join @peter2 and @systematic 's comments.
Not sure if the mouse plague was a joke or real.
Passing out of Frank Costa would impact the company's direction significantly.
DNH

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Very good analysis guys, it was initially hard to make any sense of the price drop but I guess there are some factors that could impact it's bottom line in the future.

If it declined slowly over time taking those factors into play it would have been more pleasant, but the price leading up to the nasty fall was a nice uptrend so I think a lot of traders/investors got caught/trapped :(
 
I'm not going to comment on the business fundamentals. I know @galumay may as he's posted plenty of warnings in the past about CGC.

I'm always vary of trading agricultural companies because they're at the mercy of the weather.

They actually surprised me with the turnaround they achieved, still carrying a lot of debt, but FCF was strong, my back of the envelope range of value is between $2 & $2.50.

Strong agree with your second point, they are also price takers and always lumpy returns because of both those factors plus huge swings in supply side.

Agricultural commodity businesses are just too hard for my liking, not something I want to own.
 
They actually surprised me with the turnaround they achieved, still carrying a lot of debt, but FCF was strong, my back of the envelope range of value is between $2 & $2.50.

Strong agree with your second point, they are also price takers and always lumpy returns because of both those factors plus huge swings in supply side.

Agricultural commodity businesses are just too hard for my liking, not something I want to own.
Avocado price has been a great money earner and looking at the price in Woolie - halved
 
Value is about 1 avo at my woolies!

Maybe its like A2M, value is a function of product! A2M milk is $2.50 for 2l at our woolies which is about what I reckon its worth too!
 
Value is about 1 avo at my woolies!

Maybe its like A2M, value is a function of product! A2M milk is $2.50 for 2l at our woolies which is about what I reckon its worth too!
HI @galumay, I am also a learner and probably will always be even if I've been around the block for a while...

Any comments on your thinking behind the valuation, even if it's just eye-balling ball-park estimates ?

I am trying to see if valuation can help me with picking dividend paying stocks and getting out early when valuations go sour or avoid risky ones in the first place.
 
Value is about 1 avo at my woolies!

Maybe its like A2M, value is a function of product! A2M milk is $2.50 for 2l at our woolies which is about what I reckon its worth too!
2 litres A2 is for $2.5? Only last week, it was $5.3 or so for 2 litres. That's really good for buyers (but how many bottles can you buy and store:) but definitely bad news for holders. DNH

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Way off topic, but if you divide a 3 litre bottle into one Litre bottles (completely full, no air gap ) and put them in the coldest part of the fridge they can last for up to 6 weeks.
 
Way off topic, but if you divide a 3 litre bottle into one Litre bottles (completely full, no air gap ) and put them in the coldest part of the fridge they can last for up to 6 weeks.
Total in agreement. So I keep the one-litre bottles which unfortunately mean, paying $3.5 for a one-litre bottle first, and buy three of them, then to get 3 litres A2 bottle @$7.5 (comes out @$2.5 per litres),
https://www.woolworths.com.au/shop/productdetails/797407/a2-full-cream-milk
add my labour to clean the bottles. When I spend the time on calculation, I am sure my lovely wife (just celebrated the 35th anniversary :) ) would have dumped the empty 1 litres bottles in recycle bin and raised an eyebrow not to be able to store 3 litres bottle on the side shelf of the fridge due to lack of space.
Ha Ha.
Lets get into topic - VALUE INVESTOR and Costa Group shares :)
 
Any comments on your thinking behind the valuation, even if it's just eye-balling ball-park estimates ?
Well aside from multiples of avocados or 2l milk bottles, it gets a little more complex!

My valuations are very conservative, the way I think about valuation is not how much could the business be worth, rather my idea of valuation is how little might it be worth in its current state. Thats because my first thought is preservation of capital, if I get pretty comfortable that I am unlikely to lose capital (ex a black swan event), then I can start to develop some conviction.

So I do a very conservative DCF in a spreadsheet I developed, often I am reverse engineering it and seeing what the current price indicates about future cash flows. I have very low growth assumptions and high discount rate. I also have a conviction multiple depending on the stage of the business. I try to value like I was in a position to buy the whole business, i also have a spreadsheet to work out reinvestment rates and ROIIC, FCF yield and record gross & net margins. All those things will help inform my % of conviction.

Before all of that I make sure I understand what the business does, and that I understand it well enough to explain to my wife or son in one sentence. Second question I ask myself is "why will this business still be around in 10 years?".

So with an example like $CGC, my range of intrinsic value is only $2-$2.50 because I assume very low growth, I have a discount rate of 8% because its not a sector I like and I think black swan events are probable, my conviction is only 75% because of the debt and other metrics.

That doesn't mean its not worth or going to be worth more than that in the future, hopefully it means if I can buy it at that sort of price there is not a lot of downside.

I still wouldnt buy $CGC though, I already hold much better businesses, I would just increase my holdings in something I already own, eg yesterday I added a fair bit to my @LBL position which is now my biggest holding.
 
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