Bega Cheese: Time stands still

Bell Potter


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.


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Bell Potter Securities is a leading Australian stockbroking, investment and financial advisory firm that provides a comprehensive offering of financial services to a diversified client base that includes individuals, institutions and corporations.

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