Bega Cheese Limited

BGA Details

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

FY21 Result Performance in FY21 (For the Year Ended 30 June 2021)

• The sales revenue increased by 39% YoY to $2.07 billion in FY21. The acquisition of Lion Dairy and Drinks in January 2021 has resulted in deriving 73% of sales from branded business compared to 59% in FY20.
• The company generated normalised EBITDA of $141.7 million in FY21, up by 38% YoY.
• It ended the period with net debt of $324.9 million and decreased its EBITDA to net debt leverage ratio from 2.35 times to 2.25 times.
• It 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.

Source: Company Reports, Analysis by Kalkine Group

Recent Update:

• On 29 November 2021, the company highlighted that the half-year financial period of the company would conclude on the last Sunday of December, which for the year 2021 falls on 26 December.

Outlook

As per the trading update for FY22, the company is pleased with the strategic position and progress on the integration and synergy realisation of the Lion Dairy and Drinks acquisition.

The business continues to invest in its market-leading brands and infrastructure with efficiency and growth projects well progressed despite the challenges of recent times. The interim impacts of COVID-19 and a highly volatile milk procurement environment are anticipated to impact FY2022 earnings with normalised EBITDA is expected to be in the ambit of $195-$215 million.

Key Risks

Adverse commodity or currency movement would significantly impact its earnings. The group is also exposed to the risk of significant changes in consumer demand due to government-imposed pandemic restrictions that would adversely hurt sales. Unable to fruitfully integrate acquired businesses would impact synergies, cultural alignment, and long-term value creation.

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

Stock Recommendation

Over the last six months and one-year, the stock price was up by ~+1.07% and ~+10.96%, respectively.

The stock has been valued using EV/Sales multiple based relative valuation (on an illustrative basis). The target price so arrived reflects the potential fall of low double-digit (in % terms). A slight discount has been applied to EV/Sales Multiple (NTM) (Peer Average), considering a rise in debt to equity at 0.39x in FY21 versus 0.32x in FY20 and longer cash conversion cycle at 49.3 days in FY21 versus the industry median of 45.8 days.

Considering the technical analysis, recent returns, risks associated, and current trading levels, we believe it is prudent to book profits in the stock. Thus, we give a “Sell” recommendation on the stock at the Current market price of $5.83 per share as of 31^st December 2021 (Time: 11:06 AM (GMT+10), Sydney, Australia).

Technical Overview

Daily Price Chart

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

Bega Cheese Limited (BGA) is a part of Kalkine’s Global Primary Product

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.

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