Thanks DanMai.... UBS Research Post - From yesterday at 10:00 AM...

Thanks DanMai....
UBS Research Post - From yesterday at 10:00 AM

Costa Group Holdings Ltd "Ripe for the picking? We think so. Upgrade to Buy ..."

Taking stock post ~25% price fall since the FY18 result: Upgrade to Buy
We upgrade CGC to Buy from Neutral, following c25% share price underperformance (vs. ASX200 Ind) since the August result. Underpinning our upgrade are: i) more positive 1H19YTD wholesale produce pricing: positive for CGC’s produce revenue (Figure 2); and, ii) growth projects: on UBSe, to drive >$70m of incremental EBITDA by FY22, with upside from China expansion & Avocado M&A. While we see upside to CGC’s FY19 guidance for low double-digit NPAT-S growth (UBSe c14%) as limited, and note the risk associated with a large 2H19 skew (UBSe 15/85%); we view this as priced in, with expectations re-based post the FY18 result. At c24x FY19e EPS, delivering c17% 3yr EPS CAGR, we upgrade CGC to Buy with medium-term EPS upgrades the key catalyst.

What are the catalysts?
CGC is next due to update the market at its 22 November AGM, where we expect guidance for low-double digit FY19 NPAT-S growth to be reiterated (UBSe 14%, consensus 15%). The next catalyst will likely, in our view, be a potential beat at the 1H19 result if stronger blueberry prices continue. That said, 1H19 looks unlikely to be a major focus given it will make up just c15% of FY19 profit (June YE), and be down c55% y/y, due to changing mix (flagged and per guidance). In our view, the key driver of outperformance will likely be medium-term earnings upgrades arising from successful execution of growth projects; and/or, upside from China and further M&A (Avocadoes).

Move to Buy – Share price fall overplayed given medium-term earnings outlook
We believe CGC is well placed to outperform over the medium term, underpinned by: i) attractive valuation relative to its high growth/PE peer set (Figure 8): c24x FY19e EPS, delivering c17% EPS CAGR; ii) growth projects: which UBS does not fully reflect in valuation, namely Blackberries, further Avocado M&A, Mushroom and Tomato expansion; and, iii) China: UBSe to drive ~30% of group EBITDA growth, with risk to the upside. UBSe every 100ha vs. UBSe suggests >20cps to valuation. With expectations now re-based and growth projects on track, we view the c25% share price fall since the FY18 result as overplayed and upgrade to Buy.

Valuation: Unchanged at $8.20/sh