Bega Cheese: Time stands still
Milk production volumes: YTD milk production volumes across SE Australia are down 11% YOY and BGA will not be immune to this despite its milk supply growth initiatives and recent market outperformance.
Changes to estimates: We have adjusted our forecasts to account for lower milk production volumes, slower ramp up in IMF sales in the Bemore JV and a materially lower level of sales from BGA to the Bemore JV. The net effect of these changes is downgrades to our NPAT forecasts of 22% in FY17e, 21% in FY18e and 17% in FY19e. Our target price falls to $5.19ps (prev. $6.32ps) as a result of these changes countered in part by the natural roll forward of our valuation model.
Investment view: retain Hold rating. BGA is a company transitioning from largely a commodity and contract manufacturing revenue base towards a consumer facing higher value product mix and at current share price levels investors are paying for execution of this strategy. The slower than forecast traction of the Bemore JV creates a headwind for the business in FY17e, a year that milk supply looks likely to contract. At this stage we retain our Hold rating with a downwardly revised target price of $5.19ps.
Recommendation: Hold
Previous close: $5.40
Price target: $5.19
Full report attached below.
[BGA251016.pdf]
1 topic
1 stock mentioned