Date Theme Sector

29 August 2022 Financial Result Consumer Staples

Company

Costa Group (CGC)

Robust 1H22 result

Recommendation OVERWEIGHT
12-mth target price (AUD) $3.17
Share price @ 26-Aug-22 (AUD) $2.79
Costa confirmed a robust 1H22 result, with EBITDAS growth of 13% driven by the Mushroom, Forecast 12-mth capital return 13.5%
Tomato and Grape categories within the Produce segment. Demand and pricing is strong and Forecast 12-mth dividend yield 3.9%
sufficient to currently and broadly offset cost inflation. Seasonal and agronomic issues will 12-mth total shareholder return 17.4%
always present ups and downs across categories, which presents opportunities for more active
investment strategies. We view the current share price as excessively discounting seasonal and
Market cap ($m) 1,296
agronomic issues. Looking further ahead, our current forecasts imply a group return on capital
Enterprise value ($m) 1,634
(pre-SGARA & AASB16) of ~10% in FY22 improving to 13% in FY24. This indicates potential for
upside to our forecasts if Costa can hit its return target (>15%) and in the context of significant Shares on issue (m) 464.5
growth capex and acquisitions over the past ~7 years that have delivered varied results to-date. Sold short (%) 2.9
ASX Small Ords weight (%) 0.4
 Key Points Median turnover/day ($m) 5.2

1H22 result. NPATS of $40m deceased 11% on pcp and was 6% below our forecast. EBITDAS
increased 13% on pcp but was 3% below our forecast. Produce EBITDAS increased 27% on pcp James Ferrier, CFA
but was 19% above our forecast. The miss was primarily driven by lower than expected james.ferrier@wilsonsadvisory.com.au
contribution from Grapes and Citrus, and seasonal timing in Berries (ie. later crop). International Tel. +61 3 9640 3827
EBITDAS increased 5% on pcp and was 5% above our forecast with strong growth from China
partly offset by weaker performance in Morocco. The interim dividend of 4.0cps was in line with Emma Wyndham-Smith
pcp, but below our forecast of 4.9cps. emma.wyndham-smith@wilsonsadvisory.com.au
Tel. +61 3 9640 3877
Outlook. No explicit earnings guidance. Favourable export demand and pricing for Citrus,
however weather conditions, including a prolonged La Nina period have impacted quality,
premium product packout rates and increased farming costs across all three growing regions.
12-mth price performance ($)
There remains significant volumes to be harvested in the southern region and extent of the final
impact be known until later in the season. 2PH has completed 80% of crop at mid-August with 3.60
impacts by lower quality mix compared to CY21. Berry quality is strong including premium mix
3.37
and volumes in line with expectation. Mushroom/Tomato are on a positive trajectory with strong
demand and pricing. Avocado remains challenging and Japan continued to represent a demand 3.13
opportunity. 2.90
2.67
Forecasts. EBITDAS down 3% in FY22, driven by the weaker 1H22 result, down 1% in FY23, but
2.43
up 3% in FY24, primarily driven by higher citrus volumes. EBIT changes reflect lower SGARA in
FY22 and lower D&A. NPATS down 7% in FY22, driven by the lower EBITDAS forecast, up 4% 2.20
Aug-21 Dec-21 Apr-22 Aug-22
in FY23, driven by lower D&A, and up 13% in FY24, driven by the higher EBITDAS forecast and
CGC XSO
lower D&A.
1-mth 6-mth 12-mth
Valuation. Our revised 12-month target price of $3.17 p/share is set at the midpoint of our
Abs return (%) 11.6 0.7 (13.9)
earnings capitalisation valuation ($3.03, FY22 PER (EPS-SL) 19x) and DCF valuation ($3.29).
Rel return (%) 6.8 8.4 3.4
Costa’s historical 12-month forward PER has traded in a range of ~17-24x.

Financial summary (Y/E Dec, AUD) FY20A FY21A FY22E FY23E FY24E Key changes 12-Jul After Var %
EBITDA norm ($m) 152.8 210.7 260.0 294.7 313.2 EBITDA FY22E 271.6 260.0 -4%
NPAT norm ($m) 66.5 56.1 65.1 87.3 96.3 norm FY23E 298.7 294.7 -1%
EPS norm (cents) 16.6 12.8 14.0 18.8 20.7 ($m) FY24E 305.9 313.2 2%
Consensus EPS (cents) 14.7 19.6 20.3 EPS FY22E 15.8 14.0 -11%
EV/EBITDA (x) 9.4 7.8 6.3 5.4 5.2 norm FY23E 18.4 18.8 2%
P/E (x) 16.8 21.8 19.9 14.8 13.5 (cents) FY24E 18.7 20.7 11%
Dividend yield (%) 3.2 3.2 3.4 4.6 5.0 Price target 3.22 3.17 -2%
Rating O/W O/W
Source: Company data, Wilsons estimate, Refinitiv.
All amounts are in Australian Dollar (A$) unless otherwise stated.

Wilsons Equity Research

Analyst(s) who owns shares in the Company: n/a Issued by Wilsons Advisory and Stockbroking Limited (Wilsons) ABN 68 010 529 665 – Australian Financial Services
Licence No 238375, a participant of ASX Group and should be read in conjunction with the disclosures and disclaimer in this report. Important disclosures regarding companies
that are subject of this report and an explanation of recommendations can be found at the end of this document.
29 August 2022 Consumer Staples
Costa Group Holdings Limited

 Business Description  Investment Thesis

Costa Group Holdings Limited is an Australia-based horticulture
company. The Company is engaged in growing, packing and marketing
fresh fruits and vegetables.
We are attracted to Costa’s scale and market position in key fresh
produce categories. Seasonal and agronomic issues will always present
ups and downs across categories, which presents opportunities for more
active investment strategies. We view the current share price as
excessively discounting seasonal and agronomic issues.

 Catalysts  Risks
Updates on production expansion plans; Acquisitions; Industry news Variability in agronomic issues, such as weather, disease and pests;
flow on crop conditions and commodity prices. Variability in commodity prices; Customer concentration in the domestic
retail channel.

P&L ($m) FY20A FY21A FY22E FY23E FY24E Balance sheet ($m) FY20A FY21A FY22E FY23E FY24E
Sales 1,165 1,184 1,358 1,391 1,486 Cash & equivalents 16.1 61.9 73.3 109.1 109.9
EBITDA norm 152.8 210.7 260.0 294.7 313.2 Current receivables 87.5 108.0 115.4 118.2 126.3
EBIT norm 97.0 102.3 132.6 162.9 176.6 Current inventory 64.0 101.1 101.8 104.3 111.5
PBT norm 89.3 77.3 92.7 121.3 133.5 PPE 412.2 799.9 764.7 730.1 689.5
NPAT norm 66.5 56.1 65.1 87.3 96.3 Intangibles 207.5 289.1 287.6 286.0 284.4
NPAT reported 65.2 41.4 62.9 87.3 96.3 Other assets 365.3 643.0 650.3 650.3 683.1
EPS norm (cents) 16.6 12.8 14.0 18.8 20.7 Total assets 1,153 2,003 1,993 1,998 2,005
DPS (cents) 9.0 9.0 9.5 12.7 14.0 Current payables 119.8 149.3 142.6 146.0 156.1
Total debt 149.1 361.1 361.1 361.1 361.1
Growth (%) FY20A FY21A FY22E FY23E FY24E Other liabilities 349.2 664.7 632.7 587.9 538.7
Sales 11.2 1.6 14.7 2.4 6.9 Total liabilities 618.2 1,175 1,136 1,095 1,056
EBITDA norm 48.1 37.9 23.4 13.3 6.3 Minorities 0.0 38.4 46.1 55.3 66.3
NPAT norm 111.7 (15.7) 16.2 34.1 10.3 Shareholders equity 534.4 789.6 810.7 847.7 882.5
EPS norm (cents) 72.5 (22.7) 9.4 34.1 10.3
DPS (cents) 63.6 0.0 5.2 34.1 10.3 Cash flow ($m) FY20A FY21A FY22E FY23E FY24E
Operating cash flow 133.6 153.8 212.0 250.3 256.7
Margins and returns (%) FY20A FY21A FY22E FY23E FY24E Maintenance capex (28.6) (43.2) (50.1) (55.1) (57.9)
EBITDA margin 13.1 17.8 19.2 21.2 21.1 Free cash flow 105.0 110.6 161.9 195.1 198.8
EBIT margin 8.3 8.6 9.8 11.7 11.9 Growth capex (50.3) (84.4) (40.5) (40.5) (36.5)
PBT margin 7.7 6.5 6.8 8.7 9.0 Acquisitions/disposals 0.0 (291.4) 0.0 0.0 (31.0)
NPAT margin 5.7 4.7 4.8 6.3 6.5 Dividends paid (24.0) (38.6) (41.8) (50.3) (61.5)
ROA 8.4 5.1 6.7 8.2 8.8 Other cash flow 4.1 (37.7) (68.2) (68.5) (68.9)
ROIC 14.5 9.1 11.6 14.1 14.7 Cash flow pre-financing 34.8 (341.5) 11.4 35.8 0.9
ROE 12.4 6.8 7.6 9.7 10.2 Funded by equity (0.3) 185.2 0.0 0.0 0.0
Funded by cash/debt 4.4 (212.9) (11.4) (35.8) (0.9)
Interims ($m) 1H21A 2H21A 1H22A 2H22E 1H23E
Sales 612.4 571.2 708.7 649.1 721.4 Liquidity FY20A FY21A FY22E FY23E FY24E
EBITDA norm 118.3 92.5 140.6 119.4 173.3 Cash conversion (%) 103.9 95.6 101.1 105.1 103.4
EBIT norm 68.0 34.3 75.1 57.6 105.4 Net debt ($m) 133.1 299.2 287.9 252.1 251.2
PBT norm 56.4 20.9 55.8 36.9 86.6 Net debt / EBITDA (x) 0.9 1.4 1.1 0.9 0.8
NPAT norm 39.5 16.5 40.0 25.1 64.6 ND / ND + Equity (%) 19.9 26.5 25.1 21.8 20.9
NPAT reported 37.4 4.0 37.8 25.1 64.6 EBIT / Interest expense (x) 12.6 4.1 3.3 3.9 4.1
EPS norm (cents) 9.9 3.5 8.6 5.4 13.9
DPS (cents) 4.0 5.0 4.0 5.5 5.4 Valuation FY20A FY21A FY22E FY23E FY24E
EV / Sales (x) 1.2 1.4 1.2 1.2 1.1
Stock specific FY20A FY21A FY22E FY23E FY24E EV / EBITDA (x) 9.4 7.8 6.3 5.4 5.2
International EBITDAS ($m) 53.3 77.0 83.6 90.4 99.8 EV / EBIT (x) 14.7 16.0 12.3 9.8 9.1
CF&L EBITDAS ($m) 6.2 14.6 15.8 15.8 15.8 P / E (x) 16.8 21.8 19.9 14.8 13.5
SGARA ($m) 8.0 (7.5) 2.4 6.4 6.9 P / BV (x) 2.1 1.6 1.5 1.4 1.4
FCF yield (%) 9.4 8.5 12.5 15.1 15.3
Dividend yield (%) 3.2 3.2 3.4 4.6 5.0
Payout ratio (%) 54.3 70.2 67.5 67.5 67.5
Franking (%) 100.0 100.0 100.0 100.0 100.0
Weighted shares (m) 400.8 437.3 464.4 464.4 464.4

Source: Company data, Wilsons estimate, Refinitiv.

All amounts are in Australian Dollar (A$) unless otherwise stated.

Wilsons Equity Research Page 2

29 August 2022 Consumer Staples
Costa Group Holdings Limited

1H22 Results Review

Figure 1: Summary of CGC’s 1H22 result
Y /E De c, AUD 1 H2 1 A 1 H2 2 Gr owt h WI L S e Va r

Group sales $m 612.4 708.7 15.7% 653.0 8.5%

Produce $m 36.0 45.6 26.6% 56.3 (19.0%)

International $m 82.1 86.2 5.0% 82.4 4.6%

CF&L $m 6.3 8.3 31.7% 5.8 42.9%

EBITDAS norm $m 124.4 140.1 12.6% 144.5 (3.0%)

Margin % 20.3% 19.8% n/a 22.1% n/a

EBITDA norm $m 118.3 140.6 18.8% 147.3 (4.6%)

Margin % 19.3% 19.8% n/a 22.6% n/a

EBIT norm $m 68.0 75.1 10.4% 84.4 (11.0%)

Margin % 11.1% 10.6% n/a 12.9% n/a

NPATS norm $m 44.7 39.6 (11.5%) 42.3 (6.5%)

NPAT norm $m 39.5 40.0 1.2% 44.3 (9.6%)

NPAT reported $m 37.4 37.8 1.1% 44.3 (14.6%)

EPS norm cents 9.9 8.6 (12.6%) 9.5 (9.6%)

DPS cents 4.0 4.0 - 4.9 (19.0%)

Operating cash flow $m 70.0 65.0 (7.2%) 136.9 (52.5%)

Net debt / (cash) $m 208.0 328.2 57.8% 263.8 24.4%

Source: Company data and Wilsons.

Sales of $709m increased 16% on pcp and was 9% above our forecast.

EBITDAS at $140m increased 13% on pcp but was 3% below our forecast. Segment results included:

• Produce EBITDAS of $46m increased 27% on pcp but was 19% below our forecast. The result reflects
revenue declines in avocado, quality and supply chain issues negatively impacting citrus, offset by
improvements in Grapes, Tomatos and Mushroom. The miss was primarily driven by lower than expected
contribution from Grapes and Citrus, and seasonal timing in Berries (ie. later crop).

• International EBITDAS of $86m increased 5% on pcp and was 5% above our forecast. China revenue
increased 34% on pcp driven by volume growth (+32% on pcp), strong quality and higher pricing. Morocco
revenue declined 16% on pcp driven by unfavourable weather and timing, partly offset by volume growth
(+5% on pcp).

NPATS of $40m deceased 11% on pcp and was 6% below our forecast, driven by the weaker EBITDAS.

Costa declared an interim dividend of 4.0cps, in line with the pcp, but below our forecast.

 Cash Flow

Operating cash flow of $65m decreased 7% on pcp and was 53% below our forecast, driven by an increase in
working capital primarily associated with higher inventory, including biological assets.

 Balance Sheet

Net debt of $328m increased 58% on pcp and was 24% above our forecast reflecting an increase in borrowings to
fund working capital.

Wilsons Equity Research Page 3

29 August 2022 Consumer Staples
Costa Group Holdings Limited

Earnings Outlook
 Guidance and Outlook

No explicit earnings guidance, as expected. Notable comments included:

Citrus: Whilst CY22 is an off-season, there have been positive volumes across the season to date, which is expected
to continue through 2H. There has been favourable export demand and pricing, however extreme weather
conditions, including a prolonged La Nina period, have to date impacted quality, premium product packout rates and
increased farming costs across all three growing regions. There remains significant overall volumes to be harvested
in the southern region for the remainder of the season, the extent of the final impact of these conditions won’t be
known until much later in the season. 2PH has completed 80% of crop as at mid-August with results as
foreshadowed impacted by lower quality mix compared to CY21.

Domestic Berry: The winter months saw cooler weather than the average, however the quality of early season
protected blueberries is strong, including premium fruit mix. This is expected to provide beneficial sales and pricing
opportunities for premium domestic and export sales. Season volume forecast to be in line with expectations.
Pollination requirements continue to be met and successfully managed in response to New South Wales varroa mite
incursion, including ongoing access to beehives.

Mushroom/Tomato: Are on a positive trajectory to perform favourably over 2H. Expect to continue to deliver
consistent supply volume to our customers, with strong demand and pricing.

Avocado: Current pricing conditions are improving, however industry conditions expected to remain challenging for
remainder of CY22. Continuing export demand opportunity, with WA product selling into Japan market and being
well received.

Other: Labour requirements are being met across all categories and expect this to continue over 2H. Cost inflation is
unlikely to moderate significantly in 2H.

 Changes to Our Forecasts

Sales up 2-7%, primarily driven by higher prices and citrus volumes in the outer years.

EBITDAS down 3% in FY22, driven by the weaker 1H22 result, down 1% in FY23, but up 3% in FY24, primarily
driven by higher citrus volumes.

EBIT changes reflect lower SGARA in FY22 and lower D&A.

NPATS down 7% in FY22, driven by the lower EBITDAS forecast, up 4% in FY23, driven by lower D&A, and up 13%
in FY24, driven by the higher EBITDAS forecast and lower D&A.

DPS forecasts reflect a payout ratio of ~70%.

Figure 2: Summary of changes to our forecasts

Y /E De c, AUD FY 2 2 E FY 2 3 E FY 2 4 E

Old Ne w % chg Old Ne w % chg Old Ne w % chg

Sales $m 1,264.2 1,357.7 7.4% 1,361.5 1,390.9 2.2% 1,398.0 1,486.2 6.3%

EBITDAS (norm, pre-SGARA) $m 264.3 257.7 (2.5%) 290.9 288.3 (0.9%) 297.8 306.4 2.9%

EBIT norm $m 142.0 132.6 (6.6%) 161.6 162.9 0.8% 164.8 176.6 7.2%

NPAT (norm, pre-SGARA) $m 68.3 63.5 (7.1%) 79.8 82.8 3.9% 81.1 91.5 12.9%

NPAT norm $m 73.5 65.1 (11.3%) 85.3 87.3 2.4% 86.7 96.3 11.1%

EPS norm cents 15.8 14.0 (11.3%) 18.4 18.8 2.4% 18.7 20.7 11.1%

DPS norm cents 11.1 9.5 (14.7%) 12.9 12.7 (1.5%) 13.1 14.0 6.8%

Source: Wilsons.

Wilsons Equity Research Page 4

29 August 2022 Consumer Staples
Costa Group Holdings Limited
 Revised forecasts

Figure 3: Summary of our revised forecasts

Y /E De c, AUD FY 1 5 A FY 1 6 A FY 1 7 A FY 1 8 A FY 1 9 A FY 2 0 A FY 2 1 A FY 2 2 E FY 2 3 E FY 2 4 E

P r oduce

Mushrooms $m 181.8 184.4 190.3 192.9 184.7 186.0 192.6 224.6 213.4 215.5

Growth % 7.0% 1.4% 3.2% 1.4% (4.2%) 0.7% 3.5% 16.6% (5.0%) 1.0%

Berries $m 124.2 157.1 173.7 172.3 179.9 195.3 211.4 248.7 248.7 251.2

Growth % 30.7% 26.5% 10.5% (0.8%) 4.5% 8.6% 8.2% 17.6% 0.0% 1.0%

Tomatoes $m 93.2 105.1 116.3 110.7 117.4 120.9 116.9 140.5 126.4 127.7

Growth % 24.3% 12.7% 10.6% (4.8%) 6.0% 3.0% (3.4%) 20.2% (10.0%) 1.0%

Citrus $m 182.9 216.3 234.8 207.8 250.4 279.1 291.2 339.4 370.6 428.0

Growth % 26.8% 18.2% 8.5% (11.5%) 20.5% 11.5% 4.4% 16.5% 9.2% 15.5%

Avocado $m 0.0 86.6 126.5 140.4 136.9 148.8 117.4 110.8 116.5 123.3

Growth % n/a n/a 46.0% 11.1% (2.5%) 8.7% (21.1%) (5.7%) 5.2% 5.9%

Gr oss S a le s $m 5 8 2 .2 7 4 9 .5 8 4 1 .4 8 2 4 .1 8 6 9 .3 9 3 0 .2 9 2 9 .5 1 ,0 6 3 .9 1 ,0 7 5 .6 1 ,1 4 5 .7

Growth % 20.2% 28.7% 12.3% (2.1%) 5.5% 7.0% (0.1%) 14.5% 1.1% 6.5%

EBITDAS (Consolidated) $m 56.6 73.7 109.3 91.1 65.1 76.1 116.7 146.9 170.1 178.2

Growth % 15.6% 30.3% 48.3% (16.6%) (28.5%) 16.8% 53.3% 25.9% 15.8% 4.8%

Margin % 9.7% 9.8% 13.0% 11.1% 7.5% 8.2% 12.6% 13.8% 15.8% 15.6%

Driscoll's Equity Profit $m 4.0 6.8 4.7 7.1 4.1 9.1 9.9 11.4 12.0 12.6

Growth % 209.9% 69.6% (30.7%) 50.5% (42.2%) 121.2% 8.9% 15.3% 5.0% 5.0%

EBI TDAS $m 6 0 .6 8 0 .5 1 1 4 .0 9 8 .2 6 9 .2 8 5 .2 1 2 6 .6 1 5 8 .3 1 8 2 .1 1 9 0 .8

Growth % 20.6% 32.9% 41.6% (13.9%) (29.5%) 23.0% 48.6% 25.1% 15.0% 4.8%

I nt e r na t iona l

Morocco $m 0.0 0.0 0.0 57.3 63.3 84.8 104.8 94.7 106.4 124.8

Growth % - - - - 10.4% 33.9% 23.7% (9.7%) 12.4% 17.3%

China $m 0.0 0.3 8.7 13.2 21.0 42.4 62.2 83.4 93.9 104.4

Growth % - - n/a 51.7% 59.1% 101.8% 46.8% 34.2% 12.5% 11.2%

Other $m 1.1 4.8 4.9 6.8 7.4 9.6 10.7 11.7 12.9 14.2

Growth % - 336.4% 2.1% 38.8% 8.8% 29.3% 11.4% 10.0% 10.0% 10.0%

Gr oss S a le s $m 1 .1 5 .1 1 3 .6 7 7 .3 9 1 .7 1 3 6 .7 1 7 7 .7 1 8 9 .9 2 1 3 .2 2 4 3 .4

Growth % - 363.6% 166.7% 468.4% 18.6% 49.1% 30.0% 6.8% 12.3% 14.2%

Morocco $m 0.0 0.0 (1.5) 15.3 10.7 26.0 33.0 26.5 30.9 37.4

Growth % - - - n/a n/a n/a n/a (19.7%) 16.4% 21.4%

China $m 0.0 0.0 3.0 4.1 9.5 23.5 33.5 43.4 45.1 47.0

Growth % - - - 36.7% 131.7% 147.4% 42.6% 29.5% 3.8% 4.3%

Other $m 4.2 1.4 0.9 1.8 2.5 3.8 5.5 7.6 8.4 9.2

Growth % n/a (67.0%) (35.7%) 100.0% 38.9% 52.0% 44.7% 38.6% 10.0% 10.0%

EBI TDAS $m 9 .1 8 .4 1 0 .4 2 1 .2 2 2 .7 5 3 .3 7 7 .0 8 3 .6 9 0 .4 9 9 .8

Growth % 171.1% (7.1%) 23.1% 104.8% 7.0% 134.8% 44.5% 8.6% 8.1% 10.4%

CF&L

Gr oss S a le s $m 1 7 4 .1 1 5 2 .8 1 5 4 .0 1 5 5 .1 1 4 9 .1 1 5 0 .4 1 5 9 .4 1 7 5 .3 1 7 5 .3 1 7 5 .3

Growth % 37.6% (12.2%) 0.8% 0.7% (3.9%) 0.9% 6.0% 10.0% 0.0% 0.0%

EBI TDAS $m 1 0 .2 1 0 .3 7 .6 5 .9 6 .5 6 .2 1 4 .6 1 5 .8 1 5 .8 1 5 .8

Growth % (4.2%) 1.8% (26.5%) (22.4%) 10.2% (4.6%) 135.5% 8.1% 0.0% 0.0%

Source: Company data and Wilsons.

Wilsons Equity Research Page 5

29 August 2022 Consumer Staples
Costa Group Holdings Limited

Figure 4: Summary of Wilsons forecasts pre SGARA and AASB16

Y /E De c, AUD FY 1 5 A FY 1 6 A FY 1 7 A FY 1 8 A FY 1 9 A FY 2 0 A FY 2 1 A FY 2 2 E FY 2 3 E FY 2 4 E

EBITDA norm $m 82.4 100.1 139.8 118.8 103.1 152.8 210.7 260.0 294.7 313.2

PBT norm $m 57.6 70.8 103.7 71.9 44.6 89.3 77.3 92.7 121.3 133.5

NPAT norm $m 39.7 49.1 74.2 52.1 31.4 66.5 56.1 65.1 87.3 96.3

EBITDAS norm $m 79.5 99.6 131.5 124.8 98.8 144.8 218.2 257.7 288.3 306.4

PBTS norm $m 54.6 70.3 95.4 77.9 40.3 81.3 84.8 90.3 114.9 126.6

NPATS norm $m 37.9 48.8 68.5 56.6 28.3 60.1 62.4 63.3 82.3 90.9

EBITDASL norm $m 161.7 189.0 219.3 237.0

PBTSL norm $m 89.6 105.8 129.1 139.7

NPATSL norm $m 65.8 74.1 92.2 100.0

Source: Company data and Wilsons.

Wilsons Equity Research Page 6

Valuation
Our revised 12-month target price of $3.17 p/share is set at the midpoint of our earnings capitalisation valuation
($3.03, FY22 PER (EPS-SL) 19x) and DCF valuation ($3.29). Costa’s historical 12-month forward PER has traded in
a range of ~17-24x.

Figure 5: DCF valuation Figure 6: PER valuation

Y /E De c, AUD Y /E De c, AUD FY 2 1 A FY 2 2 E FY 2 3 E FY 2 4 E

Cost of ca pit a l Ca lcula t ion NPATSL $m 65.8 74.1 92.2 100.0

Risk free rate % 3.0 PV of FCF forecast (10 yrs) $m 894.1 Multiple x 19.0 19.0 19.0 19.0

Equity risk premium % 6.0 PV of terminal value $m 1,064.2 Equit y v a lue $m 1 ,2 4 9 .5 1 ,4 0 7 .6 1 ,7 5 2 .3 1 ,9 0 0 .9

Beta (unlevered) x 1.1 Ent e r pr ise v a lue $m 1 ,9 5 8 .3 SOI m 437.3 464.4 464.4 464.4

Target Gearing (D/D+E) % 20.0 TV as % EV % 54.3% Equit y v a lue p/sha r e $ 2 .8 6 3 .0 3 3 .7 7 4 .0 9

Corporate tax rate % 21.0 Net debt / (cash) $m 287.9 Source: Wilsons.
Cost of equity % 10.6 Minorities $m 141.2

Cost of debt (pre tax) % 7.0 Equit y v a lue $m 1 ,5 2 9 .2

WACC (pre tax) % 9.9 SOI (fully diluted) m 464.4

WACC (post tax) % 9.6 Equit y v a lue p/sha r e $ 3 .2 9

Source: Wilsons.

Figure 7: Costa 12m forward PER (x)

26

24

22

20

18

16

14
May-19 Oct-19 Mar-20 Aug-20 Jan-21 Jun-21 Nov-21 Apr-22
CGC.AX Average (x)

Source: Refinitiv.
29 August 2022 Consumer Staples
Costa Group Holdings Limited

Disclaimers and Disclosures

| Recommendation structure and other definitions

Definitions at wilsonsadvisory.com.au/disclosures.

| Analyst certification

Each analyst of Wilsons Advisory and Stockbroking Limited (ACN 010 529 665: AFSL 238375) (“Wilsons”) whose name appears in this research
certifies that (1) the recommendations and opinions expressed in this research accurately reflect the analyst’s personal, independent and objective views
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