Should Bega be in investors’ shopping basket?
It made a number of acquisitions, including Tatura Milk in 2007, De Cicco in 2008, and Kraft Foods in 2009, which broadened its portfolio and cheese manufacturing capabilities over the years. Bega Cheese was listed on the ASX in 2011 at $1.81.
How it’s going: Bega kept acquiring key assets and brands, bringing Vegemite, Pura Milk and Yoplait back home when it acquired Kraft’s food business and Lion’s dairy and drinks portfolio in 2017 and 2020 respectively. Bega Cheese renamed itself as Bega Group in November 2022 to reflect the company’s diverse portfolio, and its share price currently hovers around $3.52.
The bull case: Australian shoppers saw the price of dairy products soar the most of any food category – more than 15 per cent – across 2022, and experts don’t expect this to ease up any time soon. In the December quarter alone, the price of cheese, butter, white milk, and flavoured milk all rose by double digits.
“This is clearly a positive for dairy processors such as Bega, as they are successfully passing through the substantial increase in farmgate milk prices,” UBS analysts said in a note. Bell Potter’s Jonathan Snape held a similar view: “If the inflationary gains in the dairy cabinet can be sustained into [the 2024 financial year] … then this would be a material tailwind for Bega at the group level,” he wrote.
Morningstar analyst Angus Hewitt believes profits will really take off in about three years’ time. “We think the market has become too pessimistic on near-term earnings pressure, and shares in Bega are undervalued,” he wrote in December.
“Longer term, we forecast underlying margin improvement from fiscal 2024, supported by Bega’s disciplined focus on profitability and mix-shift as the product portfolio gets rationalised toward higher-margin products.”
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The bear case: As a major dairy, food and beverages producer, demand for Bega products remains fairly steady; similarly, analysts don’t seem to be expecting a…
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