Costa Group Holdings (CGC) occupies an enviable position in a growing market - fresh, healthy food. As retailers respond to increased demand by investing more in providing fresh food the company's products are central to the table.

The company has four main categories in produce: berries, mushrooms, tomatoes and citrus. Combined, these have grown 11% per annum over the past three years. UBS expects future growth will be supported by rising consumption and new capacity.

International growth should also drive earnings as the company earns royalties on its intellectual property in blueberries in the Americas and Morocco, and the company has are joint ventures in Morocco and China. Costa also operates a marketing and logistics business.

Costa's proforma FY16 profit forecast is $48m, which will be up 24% year on year. UBS forecasts market growth of 3.0% pre annum over the next three years in which Costa's core categories should grow by 9.0%. Beyond FY16, UBS forecasts compound net profit growth of 13%.

The company is considered a beneficiary of the growing Australian demand for berries. Moreover, the asset base is difficult to replicate, given the significant capital expenditure required, and the company has a strong position via its patent protection in five types of blueberries.

UBS does highlight two areas which need to be known. Some leases are not at arms length, in that they are with entities associated with the Costa family. The leases generally have long tenure and some unfavourable provisions for the company.

The other issue is the Driscoll's brand ownership. UBS observes the company sells both raspberries - where Driscoll's owns the IP - and blueberries - Costa's IP - via its joint venture. If the agreement were to cease, the IP created by Costa in Australia under the Driscoll's brand, would be lost to Costa. Still, the broker does not believe these materially disadvantage the company over the longer term.

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