Guidance difficult depsite ‘significant positives’, says Costa
Costa Group says it will not provide quantitative earnings guidance beyond 2020.
Costa Group says it will not provide quantitative earnings guidance beyond 2020 due to the volatility of its agricultural businesses, after confirming its profit forecast for the year ahead following better than expected pricing in its domestic and international markets.
Costa Group shares rose to their highest level in four months in early trading on Thursday after it confirmed earnings prior to the impact of the self-generating and regenerating assets (SGARA) agricultural accounting standard would be around $150m in 2020 and net profit would be around 2018’s result of $56.6m.
“At this stage there are significant positives,’’ chief executive Harry Debney said.
“Pricing levels have improved considerably across most categories, particularly berries and mushrooms and the outlook for the upcoming Far North Queensland berry season is favourable.
“Early season performance from the international segment has also been positive.”
Shares in the nation’s biggest grower and marketer of fresh fruit and vegetables rose as much 9 per cent on Thursday, before closing u 4.9 per cent at $3.00.
In October the company issued its fourth profit downgrade in a year and a launched a heavily discounted one-for-four rights issue to raise $176m in fresh capital at $2.20 per share, to shore up a weakened balance sheet.
The company floated on the ASX at $2.25 in 2015 and saw its share price rise to $8.70 in June 2018 before the company issued the spate of downgrades after failing to meet precise profit guidance given to the market.
Costa said on Thursday it intends to transition to qualitative earnings guidance for future earnings periods commencing in 2021.
“It is very difficult to forecast accurately in agriculture. We intend to still be very fulsome talking about all of the issues. But to be pinned down to numbers at early stages of the season is very difficult,’’ Mr Debney said.
“We tried to be very accurate in our forecasts and as you have seen, especially in the last 12 months, we didn’t do that very well ... Increasingly across a lot of other segments of industry people are going this way.”
Costa reported earnings for 2019 in line with previous guidance of $98.3m before SGARA, down 21.5 per cent. Net profit was $28.4m but it booked a statutory net loss of $33.8m.
The company declared a final dividend of 2.0c per share, fully franked, bringing the total dividend payment for the year to 5.5c, fully franked.
While the 2020 earnings forecasts remains subject to no deterioration in export markets due to the coronavirus, with peak volumes in China to be harvested from March, Mr Debney said: “We are quietly confident the market uptake will be good. It needs to be because March through May is our main period.”
“We are seeing very strong growth in demand and improvement in pricing. We are getting pretty upbeat about that,” he added, noting the Chinese government was beginning to lift restrictions as the virus situation within China improves.
“If that continues I don’t see any negative impact in China,’’ he said.
Costa’s primary market for its citrus crop is Japan, followed by the US, then China and Korea.
“We have a lot of optionality. If the whole of the China market was not available, it would not be a big problem,’’ Mr Debney said.
Costa’s international joint venture partner, Californian berries giant Driscoll’s, took a small stake in the company just below 5 per cent earlier this year.
Mr Debney said there has since been talks between the two groups about the move.
“They have said they are supportive of Costa. It is a very modest position and they took that – they say to us – in a supportive sense. They say they have no hostile intentions,’’ Mr Debney said, noting Driscoll’s had not purchased any more shares.
“No, they have said they have stuck on what they bought. In the immediate future they have no intention on buying more shares.”
There has also been speculation the company’s pre-IPO investor Paine & Partners may be looking at buying back into Costa following Driscoll’s move. The New York-based food and agribusiness private equity firm sold completely out of Costa in the two years following the float.
“That is speculative,’’ Mr Debney said.
“We have semi regular dialogue with Paine. But there are no discussions about any future investment.”
But he said Costa would welcome their return to the share register.
“We found them a very supportive investor,’’ he said.
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