Could Aussie olive oil deliver some serious gains?

I'm on a mission to explore some of the ASX's most intriguing small caps, breaking down recent results and highlighting the key numbers and insights that matter. Today, we're taking a look at Cobram Estate Olives.

Cobram Estate Olives (ASX: CBO) is Australia's largest olive oil producer, operating over 7,000 hectares of farmland primarily in Victoria and producing 14.2 million litres of olive oil in FY25. The company listed on the ASX in August 2021, and spent the next four years trading sideways. This is despite net profits rising from a $696,000 loss in FY21 to a $49.6 million profit in FY25.

While profits may be volatile due to capex and one-off costs, the company's operating cash flow has grown at a compound average growth rate of 39% between FY21 and FY25.

Despite the prolonged sideways action, Cobram recently experienced an aggressive breakout, with the stock rallying as much as 60% to a record $3.36 between 3 July and 10 September.

Cobram Estate Olives price chart (Source: TradingView)

The catalyst behind the breakout

An FY25 trading update on 7 July was the main catalyst behind the move. It noted:

• Production up 41% to 14.2 million litres versus 10.1 million litres previously

• Strong brand performance with Cobram Estate driving sales growth in both Australia and the US

• Dividend up 36% to 4.5 cents fully franked, payable late November

• Post-harvest momentum with over 2.7 million litres sold since 30 June

The announcement triggered consensus upgrades and a 13.5% share price rally on the day.

Despite expectations of modest FY26 production declines, improved per-litre profitability impressed analysts, suggesting reduced biennial cropping impact from maturing groves. The company's premium Cobram-branded product mix supported stronger margins while pricing power held despite broader market discounting, aided by constrained supply.

US expansion momentum also attracted attention, with strong second-half sales and the joint CEO's California relocation indicating accelerated growth plans.

FY25 results

The official FY25 results on 22 August contained few surprises but noted:

• US operations faced growth constraints from stable harvest levels, though company-owned grove output increased. Nearly all US oil is locally produced to avoid tariff disadvantages on imports.

• Australian market strategy is shifting from price focus to volume growth in FY26, with margins and cash flow expected to remain robust as global commodity prices stabilise.

• Capital allocation is evolving, with Australian capex transitioning from growth to maintenance mode (A$10-15 million annually from FY26). US capex will focus on developing roughly 980 hectares of new groves within 14 months.

• Long-term supply expansion looks compelling, with maturing US groves and a 42% increase in mature Australian grove area over seven years, funded through operational cash flow and debt facilities.

Doubling down on US growth

Shortly after results, Cobram launched a $175 million capital raise at $3.20 per share or a 0.9% discount to the previous close. The proceeds will fund acquisition and development of approximately 1,600 hectares in California, expanding the US footprint to 3,600 hectares by end-2027.

Despite the dilution (roughly 11.5% of shares outstanding), investors seem to have embraced the strategy. When trading resumed on 9 September, the stock rallied 3.4% to $3.34.

Where to from here?

Earlier this month, Ord Minnett noted: "Whilst the raising is dilutive to earnings per share in the near-term, an expanded asset portfolio and increased production capacity strengthen Cobram's long-term competitive advantages in a large and lucrative market."

The analysts don't expect material earnings uplift until FY29 onwards, given the time required between planting olive trees and reaching commercial harvest. The US expansion represents a bet on accessing a large and lucrative premium market, though it all comes down to execution from here.