Costa (ASX: CGC) shares have returned to trade this morning, with the share price falling more than 20%.
It has announced its trading update, announced the capital raising and finished the institutional capital raising.
Costa is Australia’s largest horticultural business. It produces glasshouse tomatoes, berries, avocados, mushrooms and citrus fruit. It has over 4,500 planted hectares of farmland, 30 hectares of glasshouse facilities and seven mushroom growing facilities across Australia. Costa also has international interests, with majority owned joint ventures covering six blueberry farms in Morocco and three berry farms in China.
What Did Costa Announce This Morning?
On Monday it announced it was going to raise $176 million. The first step of the capital raising was asking institutional investors for their additional funds.
The money will be used to strengthen Costa’s balance sheet risk and ensure that Costa has the right capital structure to support growth in light of the recent trading and market security.
Costa announced that the institutional offer has raised $87 million from subscriptions for new shares at $2.20 per new share, with institutions taking up around 88% of the available shares.
The shares that weren’t sold were then put up for sale to existing shareholders and other institutional investors, which cleared at a price of $2.30 per share – which is a $0.10 premium to the offer price of $2.20. This bonus will be paid to institutional investors in a couple of weeks.
The next step is that existing regular shareholders like you and I will be able to buy 1 new share for every 4 existing shares for $2.20 per share, if each shareholder wants to. This part of the offer is expected to raise around $90 million. The retail offer closes on 18 November 2019.
Is The Costa Share Price A Buy?
The Costa share price is currently $2.60, so the capital raising price of $2.20 looks attractive at the moment if the share price stays around this level.
It’s quite disappointing how this has unfolded. It appears Costa took on too much debt to chase growth too quickly, and the payment of the recent dividend would have been better kept in the company’s bank account to reduce debt and the needs of this capital raising.
However, agriculture is cyclical and you’d think that conditions will improve at some point in the future, although it’s not a good time to be raising money.
After some thinking I have decided to hold my shares. If conditions worsen then Costa could be best placed to survive and if things get better then Costa will benefit too. But, it’s unlikely that I will take up more shares, similar to Frank Costa.
But after these problems, I want to increase my exposure to reliable shares like the ones in the free report below.
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Disclosure: Jaz owns shares of Costa at the time of writing, but this could change at any time.