A Sydney fund manager walked into a pretty sad-looking cafe at Toowoomba airport a few weeks back, seeking a quick breakfast before catching the QF2017 back for a day at the office.
He asked the waitress what was on the menu for breakfast and she proudly beamed back: "You have to try the smashed avocado!"
He went back to the office and bought more Costa Group shares – it's now the third-biggest holding in his small-caps portfolio.
While smashed avocado has been blamed for keeping young people out of the housing market, it's also got fundies taking another look at Costa, the Australian Securities Exchange (ASX) -listed berries, mushrooms, glasshouse tomatoes and citrus grower.
After a quiet start to listed life, Costa shares are on a tear – up 50 per cent since in the past six months and up 42 per cent since chief executive Harry Debney announced that avocados would become the company's "fifth pillar".
Costa has ridden – or arguably helped create – strong growth in Australians' consumption of blueberries and raspberries, and now has its eyes on another hot segment.
"I think it is a very valid strategy, and something they can supply all year round," says Fairview Equity Partners executive director Michael Glenane, who has followed Costa closely since buying shares at the IPO in July 2015.
"What we have learnt from blueberries is the value in being able to supply all year round, when others can't.
Costa has more blueberry varieties and dominates the shoulder periods, when prices are high and margins are high. It is a very clever strategy.
"And avocados fit this mould – it is high value to weight with potential to supply in those shoulder periods."
Costa's expansion plans started when it acquired Avocado Ridge in December, an avocado grower with farms across central Queensland and an estimated 5 per cent market share.
It did it in partnership with Macquarie Group's Macquarie Agricultural Funds Management (MAFM), in a deal where Macquarie bought the farms and Costa signed a 20-year lease to operate them.
It marked the first of what's expected to be a string of deals in the sector.
Costa wants to be the number one player in avocados, just as it is in blueberries and raspberries, and to do that it needs to pick up at least one of the existing big players and preferably one that has farms in another part of the country.
Costa has an existing avocado marketing business with an estimated 12 per cent market share, and is the only marketer with production and ripening capabilities in five states.
It also owned an avocado farm in the South Australian Riverland.
However, the Avocado Ridge acquisition quadrupled its planting hectares and signalled its intentions.
UBS analysts reckon avocado is a $350 million-a-year market and growing more than 10 per cent a year, in line with consumption trends, and made up of hundreds of small-to-medium-size family-run operations.
The biggest operators, it says, are based in Queensland and Western Australia and include the now-Costa-owned Avocado Ridge (5 per cent volume share), Simpsons Farms (25 per cent), Howe Farming (3 per cent), Delroy Orchards and Jasper Farms (13 per cent) and Southern Forests (3 per cent).
Interestingly, Jasper Farms is already on the block.
"They seem to be pretty disciplined on the price they're prepared to pay," says OC Funds Management investment analyst Stephen Evans, who has also invested in Costa since the IPO.
"There is also potential for them to see small acquisitions, for example picking up existing established [but smaller] local orchards to bolt on and run the management across as a combined single local operation."
Costa CEO Debney expects it will take another two or three years to build the avocado business into a 52-weeks-a-year producer and market leader.
And should that happen, fundies reckon it could be Costa's second-biggest money spinner behind the strong berries unit.
And avocados are just part of the story.
Debney has growth plans for just about each of the five pillars, including upgrades to berries infrastructure, the avocado vertical integration, a $65 million expansion of its biggest mushroom farm in South Australia and existing growth projects in China and Morocco.
Those growth plans – and back-to-back earnings upgrades for the 2017 financial year – have captured small-cap fundies' attention and set the share price alight.
Rusted-on supporters say it is yield gains through farming techniques – including growing berries in coconut husk and feeding at specific intervals with liquid fertiliser – that is really fuelling the numbers. Avocados are just a good hook for new investors.
The company had a full card for its Tasmanian berry site tour in January, and a big schedule of meetings post its results last month, while brokers report that Costa's also capturing interest from quant funds with the stock screening well on an earnings and momentum basis.
But it wasn't always that easy for Costa.
Its IPO in July 2015 was a difficult affair and while the deal got away without being repriced, those close to the float said it was one of the toughest deals of that year.
The fruit and vegetable company came to the Australian Securities Exchange (ASX) boards after decades in the hands of the Costa family and four years when it was held in conjunction with US private equity firm Paine and Partners.
"Initially at the IPO there were question marks around the related-party leases, but I thought it was a little nonsensical," OC's Evans says.
"The leases were in the forecasts, and shares were being sold with the leases backed in. The leases looked reasonable to us, and were in the numbers."
Costa's other problem was that it was an agricultural sector play pitchinga technology story. It was more expensive than other traditional agriculture sector stocks, and plenty of fundies wanted to see that the technology angle was more than just an IPO story.
It's still covered by only a small handful of brokers, despite a $1.4 billion market value and its inclusion in the ASX200 more than 12 months ago.
"I have always said to our team it takes a while to get demonstrated performance," Debney says.
"We are trying to inject much more technology into farming and you can talk as much as you want, but you have to demonstrate you can do it."
And seeing is believing, even for some of the longer-time supporters like Glenane.
Having been on Costa's Tasmanian site earlier this year, he reckons the market has overlooked what may turn out to be Costa's biggest growth engine - blackberries.
"Picking wild blackberries in the outer suburbs of Melbourne is one of my happier memories from childhood," he says.
"The blackberries currently on the shelves at the supermarket taste like battery acid but the varieties we saw and tasted were simply stunning.
“We tested eight different varieties on a recent Tasmanian field trip and there is a very good chance these guys could be global market leaders.
"Costa's biggest profit source is blueberries, and then raspberries. But we think blackberries could be bigger for Costa then raspberries."
- This article first appeared in The Australian Financial Review