Since our last Costa Group (CGC) article in September of 2019 the stock has been on the short end of the stick when it comes to weather conditions.
Costa’s citrus output and quality has been lack luster due to wild and wet weather conditions which has battered the company’s key production facilities in Queensland and South Australia.
As a result, the market hasn’t been loving of Australia’s largest fruit and vegetables producer, which has seen a slide from $3.28 per share at the time of our last article to $2.75.
Source: IRESS
BUT the future remains bright!
Private equity group Pain Schwartz Partners has acquired a 13.78% ownership stake in Costa Group, signalling a potential takeover bid.
What makes this so interesting is that Pain Schwartz Partners formerly owned Costa alongside its founding family. If anything, they are a good gauge that the stock is undervalued given their history and recent ownership stake.
Rapidly increasing inflation and the resulting increase of interest rates means that household budgets are going to be put to the test. The obvious items that are going to be reduced or cut back on before anything else relate to discretionary spending, such as unnecessary subscriptions or giving your Uber Eats account a needed break. Contrary to this, fresh fruit and vegetables are going to be purchased regardless of price.
Cost blowouts resulting from supply chain issues, labour disruptions from COVID-19, wage increases, and rising fuel prices are hurting many companies profit margins as they cannot pass on increased costs to consumers without affecting demand for their products or service. Fortunately for Costa Group they are in a strong position to mitigate this effect given the necessity of their products.
It doesn’t matter what type of fruit or vegetables you enjoy eating, there is a very good chance that you will end up purchasing an item from Costa Group given their dominant presence in Woolworths & Coles and their market leading positions in the following five categories:
- Avocados
- Citrus
- Mushrooms
- Berries
- Tomato
We definitely like CGC at these price levels, berry up! $2.75