Costa is a stock we follow, and yesterday’s price action, and subsequent downgrade are interesting.
The basic story is that wet weather (floods in NSW, and elsewhere) have affected crops, specifically the citrus harvest, and CGC are unsure of just how bad that will be.
Citrus is a 31% share of revenue, and is estimated (broker consensus) at around 20% of profit.
Since management don’t know how bad things are, and, when you don’t know the probability distribution, assume half, we can assume a 10% point hit to profit.
That’s quite large, for a stock on 20x.
With a fair amount of uncertainty to overhang the company to the result, you can somewhat safely assume it is unlikely to re-rate in the interim.
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