Stock’s Details

Decent FY18 Performance: Bega Cheese Limited’s (ASX: BGA) stock climbed up 2.7% on August 29, 2018 following the announcement of full year result whereinthe group delivered revenue growth of 17 per cent to $1.44 Bn in FY18 as compared to the prior year. It was mainly driven by the robust International sales and higher demand for milk from the suppliers during the period. EBITDA for the company, however, dropped 60% to $92 million. Statutory earnings per share came in at 15.6 cents per share against the 90.9 cps in FY2017, marking a decline of 83% on Y-o-Y basis. The bottom line was mainly impacted by one-time expenses related to the acquisition relating toKoroit facility, Bega Foods, and PCA. Further, the company’s acquisition of Koroit facility is expected to give it’s a much-needed head start in the West Victoria. Even though BGA had operations here, it was still to have a processing site. The capacity at Koroit is much larger compared to the Tatura plant at 800 million liters of milk along with the butter production and milk divers. We expect that Koroit would help BGA to come up with more sophisticated dairy products along with serving the conventional commodity markets.
Management of the company sounded cautious stating that the current headwinds in the Australia dairy industry puts the company in a difficult spot. Cheese market remains challenging for the company and management believes that revenue from the Cheese cutting and processing would be impacted for the short term. However, we anticipate that the expansion related cost incurred in the current financial year could reflect in the future quarterly earnings.


Segmental Revenue Break-up (Source: Company Reports)

Stock Performance: The stock has generated a year to date return of 5.95% and is hovering around its 52-week high, looking expensive at the current juncture. After investor’s hitting the sell button in the early trade, the stock has surged post the result release. Although buying came after a drop in the stock post result release, it might not provide a significant upsurge without key catalysts. The relative strength indicator that signifies momentum in the stock may take position in the overbought zone. The stock has already generated a return of around 11.66% over the past six months and taking a position at the current level might be viewed with few risks and considering prevailing trading levels. Based on the foregoing and trading level, we maintain our “Expensive” recommendation on the stock at the current market price of $7.870.

 
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