Frying higher: Do investors love Cobram Estate as much as shoppers do?

If it’s not already your preferred olive oil, you’ve most likely grabbed a bottle of Cobram Estate off the supermarket shelf to cook with or drizzle on salads.

In Australia, Cobram Estate has become virtually synonymous with high-quality extra virgin olive oil. And for good reason: the company has developed Australians’ appetite for the stuff and is now responsible for 72 per cent of national annual production.

Cobram Estate founders Paul Riordan (left) and Rob McGavin.

But since the company listed on the Australian stock exchange a little under two years ago, Cobram Estate’s shares have languished and lost more than 28 per cent of their value.

Yet things are looking up for the brand: it has set its sights on the American market, which is nine times bigger than Australia’s and promises greater revenue, profits and returns for shareholders.

As we enter harvest time, can Cobram Estate keep the oil flowing – and the share price rising?

Industry: Food and beverages, consumer staples

Main products: Extra virgin olive oil (brands include Cobram Estate, Red Island)

Key figures: Joint chief executive Leandro Ravetti (technical and production); joint chief executive Sam Beaton (finance and commercial); chairman Robert McGavin

How it started: It all began with McGavin and co-founder Paul Riordan, who planted the first olive tree in 1999. May 2001 marked the first harvest and first olive oil made for the business that was then known as Boundary Bend, and things scaled up quickly from there: three years later, the business was producing 668,000 litres of extra virgin olive oil.

It won its first award in October 2004, acquired the Cobram Estate brand in 2006 and set up operations in California in 2014.

How it’s going: Cobram’s olive oil is world-renowned, having won nearly 500 awards since 2003. It owns 18,677 hectares of farmland and three olive mills, as well as a few olive research and testing laboratories. The company listed on the ASX on August 13, 2021, at $1.90 per share. Today, the share price is hovering around $1.34.

Leandro Ravetti of Cobram Estate: Can the olive oil producer keep the oil flowing and the share price rising?Credit: Stephen Kiprillis

The bull case: Joint CEO Ravetti is hopeful the economic downturn will be good news for olive oil sales as people cook at home more instead of dining out. The Red Island brand, the more affordable sister label to Cobram, tends to perform well in this environment.

It’s held up well so far; the company’s packaged sales volumes for the third quarter were higher than the first and second quarter of the 2023 financial year, with the olive oil business expecting strong sales again for the fourth quarter.

A few factors are starting to come together in Cobram’s favour: a handful of key input costs are coming down, including the price of fertiliser and water. On top of that, a lower crop harvest in Spain has unbalanced global supply, resulting in higher import prices and therefore prices for the consumer, and pushing up demand for Cobram’s locally made products.

Ord Minnett has a “buy” recommendation on the stock, as does Bell Potter. Barrenjoey has an “overweight” rating on the stock.

Industry observers are also upbeat about Cobram Estate’s future prospects, particularly in the US. “We believe that the USA reaching profitability and scale (forecast for the 2024 financial year) is a major milestone for the company,” Ord Minnett analyst wrote in a recent note.

The bear case: Cobram Estate is an agricultural business and therefore exposed to one major risk no one can control: the weather. La Nina created cooler, wetter growing conditions that left Cobram’s expectations of oil accumulation roughly 15 per cent lower than historical averages.

“Drought, frost, hail, flood, wind, extreme heat, bushfire, or a combination of these events can impact the health of the olive tree and the crop yield,” Bell Potter analyst Jonathan Snape said in a note. “[This] may negatively impact Cobram’s financial results.”

The nature of the risk is long-term, he pointed out. “In the future, weather and climate issues that could adversely impact Cobram Estate Olives may arise with greater frequency or may be less predictable due to the effects of climate change.”

Analysts also noted the fluctuation in reported profit or loss due to the biennial nature of olive crop yields as another risk, as well as customer concentration (Coles and Woolworths are Cobram’s top two clients, accounting for 53 per cent of the company’s 2022 revenue) and reliance on third-party olive producers in the US.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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