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Date : 28/05/2021

Costa Group Shares Crashed by 22% on ASX. Should we buy it?

Costa Group Holdings engages in the provision of horticultural business. It operates through the following segments: Produce, Costa Farms and Logistics (CF&L), and International. The Produce segment operates in berries, mushrooms, glasshouse-grown tomatoes, citrus, and avocados. The Costa Farms and Logistics segment incorporates interrelated logistics, wholesale and marketing operations within Australia. The International segment focuses on licensing of blueberry varieties in Australia, the Americas, China and Africa, and international berry farming operations in Morocco and China.

Costa Group had their Annual General Meeting a few days ago and the results of the meeting were announced before the market opened on the 27th of May. While berry and avocado sales have reportedly been solid, the company warned its domestic mushroom, citrus and tomato productions were all experiencing issues.

While the international segment has been performing well, the strong Australian dollar has negatively affected the firm, given that most of their revenues are generated in a different currency and then converted to AUD. This led to the management announcing that their guidance will have to be revised.

The bulk of the harvest occurs in the second half of the year, and Costa expects it to yield strong results. However, given that CGC shares were trading at high valuations, the hiccup did result in a massive correction and selling pressure has mounted. Trading Volumes have jumped from an average of 1.5 million shares a day to 21 million on the 27th of May and 14 million on the 28th of May.

CGC shares currently trade at $3.31 a share amid a 23% decline in less than a week.

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