Costa Group has received an indicative acquisition proposal at $3.54 per share including potential dividends. Due diligence by Paine Schwartz, the potential acquirer, will conclude on 1 August. We see a 90% probability of a takeover proceeding. The indicative offer is 35% higher than where the shares were trading just prior to a news article speculating on a potential takeover and the multiple is well ahead of its average over the past three years. There is an argument that the margins are depressed, and past capital investment and acquisitions are yet to bear fruit (pun intended), but the company has inherent earnings volatility and there is an oversupply in blueberries and avocados keeping a lid on margins.

Domino’s AGM update gave some positive signs about sales trends improving, but also solidified concerns about the challenge in raising prices to cover higher costs. The company is planning for a much better 2H23e, which looks difficult to achieve in our view, particularly given franchisee profitability is falling.

Domino’s reported FY22 EBIT of $263 million, down 10%. The result showed a slowdown in network sales growth and reduction in profit margins given continued cost growth. The company has said trading improved early in FY23e and it will look to raise prices in Europe to deal with higher costs. We expect sales to remain subdued in 1H23e and are cautious about European margins given consumers may have less disposable income. The upgrade to FY24e reflects the acquisition of additional Asian territories and low-cost debt funding.

Domino’s European investor day reiterated the desire to rollout stores and emphasised a focus on acquisitions where possible. The company has an impressive track record in lifting sales productivity, especially in Germany which is up 61% in four years. Despite competitive threats, Domino’s has become the dominant pizza offering in each EU market. While the long-term story is intact, we doubt there will be any changes following the investor day and the company still faces a headwind to sales over the next 18 months.

Wesfarmers has increased its bid for API to $1.55 per share, a 12% lift in its offer price. The API Board has indicated support. While the enterprise value is less than $1 billion, it is an important development for Wesfarmers as it establishes a Health segment. More acquisitions may follow. API is also likely to be part of Wesfarmers digital ecosystem over time.