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Why the Costa (ASX:CGC) share price has surged 70% in a year

The Costa share price has risen by over 70% in 12 months, despite the challenges presented by the COVID-19 pandemic. Let’s take a look at why.
The post Why the Costa (ASX:CGC) share price has surged 70% in a year appeared first on The Motley Fool Australia. –

fruit and veg share price represented by rising bar chart made from fruit and vegetables

Horticultural producer Costa Group Holdings Ltd (ASX: CGC) has had a good run over the last twelve months. During this period, the Costa share price has risen by 73.58%, despite the challenges presented by the COVID-19 pandemic.

Let’s take a closer look at what’s been driving the Costa share price.

Rundown of 2020 results

The company produced relatively solid results in 2020, despite the market downturn.

In the company’s last announcement on its financials for calendar-year 2020 (CY20), Costa reported that its earnings before interest, tax, depreciation and ammortisation (EBITDA) for the half-year was $93.7 million. This represented a 13.7% increase on CY19’s EBITDA.

Those earnings translated to a bottom line net profit after tax (NPAT) of $45.8 million, which was 12% higher than 2019.

Costa reported that the solid numbers were underpinned by strong retail mushroom demand in Australia, along with the full commissioning of its Monarto mushrooms facility in South Australia.

About Costa’s operations

The Australian fresh produce market is fragmented, and Costa is the largest player in this space.

The company has roughly 15% overall share of Australia’s fresh produce market but for certain categories, like berries, it commands up 60% of the market.

Only a fraction of Australian fresh produce is imported, reflecting the stringent biosecurity measures on imported products.

This has helped to protect Costa’s Australian business from encroaching international competition, however the company is still exposed to local competition in the form of around 18,000 small businesses operating across the Australian supply chain.

Overseas, Costa operates farms in Morocco and China. The company’s Moroccan operations license the export of blueberries to the United Kingdom and Europe. In China, Costa’s berries are farmed and sold locally. According to Costa, its international segment performed strongly in 2020, as well as in previous years.

Costa’s customer base is highly concentrated. According to the company, around 70% of its Australian sales are to just four large supermarket customers – Woolworths Group Ltd (ASX: WOW), Coles Group Ltd (ASX: COL), Aldi, and Metcash Limited (ASX: MTS).

How about the Costa share price?

As mentioned, the Costa share price has risen by nearly 75% over the last 12 months. In fact, in the last 6 months alone, the company’s shares have risen by around 40%.

At the time of writing, the Costa share price is trading 2.1% lower for the day so far at $4.27.

Based on current levels, the company commands a market capitalisation of $1.72 billion.

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Motley Fool contributor Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Why the Costa (ASX:CGC) share price has surged 70% in a year appeared first on The Motley Fool Australia.

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