Bega Cheese Limited

BGA Business Details

Bega Cheese Limited (ASX: BGA) is a diversified branded food business company with an integrated value chain from farm to consumer. The company involves in receiving, processing, manufacturing, and distributing dairy and other food-related products.

Result Performance for the Year Ended 30 June 2021 (FY21)

• The sales revenue increased by 39% YoY to $2.07 billion in FY21. The acquisition of Lion Dairy and Drinks completed in January 2021 has supported deriving 73% of sales from branded business in FY21 compared to 59% in FY20.
• The EBITDA stood at $141.7 million in FY21, up by 38% YoY. The net debt stood at $324.9 million in FY21 and decreased its EBITDA to net debt leverage ratio from 2.35 times in FY20 to 2.25 times in FY21.
• The company declared a final fully franked dividend of 5.0 cents per share for FY21. This takes the overall dividend for FY21 to 10.0 cents per share, amounting to $30.2 million.

Consolidated Comprehensive Income Statement (Source: Company Reports) 

Key Update

• As per the release dated 24 September 2021, the company plans to hold an online Annual General Meeting on 26 October 2021.

Key Risks

Adverse commodity or currency movement would significantly impact its earnings. The company is also exposed to the risk of significant changes in consumer demand due to government-imposed pandemic restrictions that would adversely hurt sales.

Outlook

The company will continue to focus on realising Bega Dairy and Drinks synergies and invest in brands, markets, and new capabilities. It believes that its 26% market share in yoghurt and 48% market share in milk-based beverages has placed the company in a better position to capitalise on megatrends such as the growing appeal of natural, healthy foods and a shift to convenience. Further, it stated that the ownership of a new portfolio of market-leading brands, along with the benefits of expanded manufacturing and supplier footprint, will deliver significant growth opportunities across the branded and bulk segments of the business.

The company will emphasize selling more products to diverse consumers through its expanded networks as well as fast-track its pipeline of product innovation and leverage the advantage of a complementary product range and distribution channels.  

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview:

Daily Price Chart

Source: REFINITIV, Note: Purple colour line reflects Relative Strength Index (14-Period)

Stock Recommendation

Over the last 9-month and one year, the stock price increased by ~3.26% and ~6.42%, respectively. The stock is trading lower the average price of 52-week low-high range for the stock at $4.849 - $6.60, respectively, which indicates a decent opportunity for accumulation.

The stock has been valued using EV/Sales multiple based relative valuation (on an illustrative basis) and the target price so arrived reflects the potential rise of low double-digit (in % terms). A slight premium has been applied to EV/Sales Multiple (NTM) (Peer Average), considering its robust performance in FY21, growth strategies and positive outlook on milk supply for FY22.

Considering the aforementioned factors, a “Buy” recommendation has been assigned on the stock at the current market price of $5.325 per share (Time: 12:36 PM (GMT+10), Sydney, Australia) as of 5^th October 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.