Costa Group has signed an agreement with Macquarie Agricultural Funds Management (MAFM) to acquire the Lankester Avocado business in Queensland.
Ord Minnett sees the acquisition as a good strategic fit, mainly as it would increase the group’s year-round avocado growing exposure, and we project the acquisition on its own would be earnings enhancing.
We have made several changes to our earnings assumptions that result in unchanged EPS forecasts for FY17, a 12% increase in FY18 and a 3% decrease in FY19, leading to price-earnings multiples of 26.6 in FY17, 22.8 in FY18 and 23.4 in FY19. On this basis, we believe the risks outweigh the reward opportunity.
We maintain our Lighten recommendation and increase our price target to $4.04 from $3.79. We prefer the salmon sector based on our comparative PE ratios.