Shares of Australian horticulture company Costa Group Holdings (AU:CGC) rose over 3% on December 12, after providing an update on the shareholder vote for its proposed takeover and earnings outlook. Costa has set January 30, 2024, as the date for a shareholder vote on the AU$1.496 billion offer from the Paine Schwartz Partners-led consortium. Further, the fruit and vegetable grower lowered its full-year 2023 earnings forecast to below 2022 levels.
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In its half-year report in August 2023, Costa forecasted CY23 EBITDA-S (earnings before interest, tax, depreciation, amortisation, fair value movements in biological assets (SGARA) and material items) to exceed 2022 levels. However, after reviewing the actual trading figures since August, the company established that the unfavourable factors that set off at the end of CY22 and early CY23 continue to hamper production, especially impacting the citrus fruits. At the same time, solid production of berries and tomatoes will impact their pricing.
Costa’s Potential Takeover on Radar
The Paine Schwartz Partners (PSP)-led consortium, including Costa’s joint venture partner Driscoll’s, has offered AU$3.20 per share to acquire Costa per the scheme implementation agreement. The scheme included a condition that Costa would not reduce its consolidated net assets or the consolidated annual EBITDA-S beyond specified thresholds.
It remains to be seen if Costa’s latest revision in EBITDA-S would hamper the offer price. The PSP-led consortium already lowered (from AU$3.50 per share) its bid price in August following a weak half-year 2023 performance. The company’s board is unanimously urging shareholders to vote in favor of the scheme in the absence of any superior bids. Plus, the scheme outlines the recommendation of an independent reviewer, Kroll Australia, who supports the takeover offer.
Is Costa Group Stock a Buy or Sell?
Following the trading update, Macquarie analyst David Pobucky downgraded CGC stock to Hold from Buy. The analyst assigned a price target matching the takeover bid of AU$3.20, implying 4.9% upside potential.
Overall, with two Buys versus three Hold ratings, CGC stock has a Moderate Buy consensus rating on TipRanks. The Costa Group Holdings share price forecast of AU$3.14 implies 3.1% upside potential from current levels. Year-to-date, CGC shares have gained 13.6%.
