Bega Cheese Limited

BGA Details
 
Decent Growth in Revenue: Bega Cheese Limited (ASX: BGA) is engaged in processing, manufacturing, cutting and packaging traditional cheese products. The company is also involved in the manufacturing of high-value dairy products. Ethical Partners Funds Management Pty Ltd has made a change in its substantial holdings in Bega on 26^th February 2020, and its current voting power remains at 9.01% against the previous voting power of 7.95%.
For 1H FY20, the company reported a rise of 14% in revenue, which totalled to $741.2 million. The export branded consumer and food service business experienced strong growth in revenue. Underlying results were not favorable as they were impacted by reduced milk supply and margins in the dairy industry mainly in Northern Victoria. The Board of the company declared an interim dividend amounting to 5.0 cents per share. The company will pay the said dividend on 3^rd April 2020.


Financial Metrics (Source: Company Reports)

No material Impact of Coronavirus: With respect to the potential impact of COVID-19 on its businesses, the company has confirmed that it experienced no material impact on its supply chain and customer shipments. Hence, it expects normalised EBITDA in the ambit of $95 million to $105 million. The company continues to focus on its cost structure for maintaining a globally competitive supply chain.

Valuation Methodology: P/CF Based Valuation 
 

 
P/CF Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: The statutory net cash inflow from operating activities stood at $38.1 million in 1H FY20, against net cash outflow of $128.3 million in 1H FY19. Current ratio of the company stood at 1.58x in 1H FY20 against the industry median of 1.49x. This reflects that the company is in a decent position to address its short-term obligations as compared to the peer group. Net margin of the company stood at 1.2%, reflecting YoY growth of 0.4%. This reflects that the company has improved its position to convert its top-line into the bottom-line on a YoY basis.  We have valued the stock using price to cash flow based relative valuation approach, and for the purpose, we have taken peers such as Select Harvests Ltd (ASX: SHV), Elders Ltd (ASX: ELD) and Freedom Foods Group Ltd (ASX: FNP) and arrived at a target price, which is offering an upside of high single-digit (in percentage terms). Therefore, considering the growth in revenue, decent liquidity position and no material impact of COVID-19, we give a “Buy” recommendation on the stock at the current market price of $4.010 per share, down by 0.988% on 2^nd March 2020.

 
BGA Daily Technical Chart (Source: Thomson Reuters)
 

Eagle Health Holdings Limited

EHH Details
 
Fall in Revenue: Eagle Health Holdings Limited (ASX: EHH) is involved in developing, manufacturing, marketing and distribution of healthy food products. For FY19, the company realised lower revenue in its traditional sales channels such as minor stores, pharmacies etc., because of economic downturn throughout China retail markets and changes to consumer habits and competition from online sales. The company reported a fall of 7.04% in revenue, which stood at $103,302,210.

EHH inked a Distribution Agreement with Zoono Group Limited for distributing Zoono’s products in China. Recently, Zoono notified eagle that its Z-71 Microbe Shield is 99.99% effective against COVOID-19. 


Financial Performance for FY19 (Source: Company Reports)

Delivering Long-Term Benefits: The company has recently expanded the range of its products made available through its current television marketing campaigns. EHH anticipates that these actions would help the company in delivering long term benefit in its marketing and sales effectiveness. These actions would also help the company in addressing the immediate challenges in its retail environment as a result of the coronavirus protocols.

Stock Recommendation: The company also entered into a collaboration agreement with Amka Products (Pty) Ltd. As per the terms of the agreement, Eagle and AMKA would collaborate for assisting each other with respect to the reach of products of Eagle into the African market and AMKA products into the Australian and China markets. This collaboration initiative will help in unlocking real synergies between the two parties in the vast health and wellness sectors. At the current market price of $0.190 per share, the stock of Eagle is trading at a P/E multiple of 3.48x. Therefore, considering the company’s recent agreements, current trading levels and fall in earnings, we have a watch stance on the stock at the current market price of $0.190 per share, up by 5.556% on 2^nd March 2020.

 
EHH Daily Technical Chart (Source: Thomson Reuters)

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