Revisiting Costa, once more.

I spend a bit of time looking at CGC, mainly because I like the ag thematic in a world trying to feed itself, also because of recent wins like TGR (Tassal) but the fundamentals aren’t totally straightforward.

Naively, low free cashflow, eaten by all the capex (farming is capex heavy).

But, the operating cashflows have grown. The money isn’t disappearing into a hole.

Production volumes are up, and the international berries business is growing accordingly. People like the product, and they are making more, which comes through at a lag (harvests take time).

The recent 2PH/citrus acquisitions should drive NPAT over time, which is captured in consensus forecasts.

Profit margins are reasonably consistent (RHS).

Seasonality of cashflows, timing of harvests, COVID, wet weather, and impact of acquisitions make a clean read of anything pretty challenging. It “seems” like the 2H should be much stronger for flows, making the balance sheet less scary looking / less stretched.

And the valuation would appear to compensate for many of these uncertainty related issues. But it falls into the “very low conviction over the next 6 months” / “wait for the next update” heuristic.

We note UMG (released today) is squeaking by without a cap raise. That’s the number one threat CGC, ING and ABC as we see it.

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