Bega Cheese: Time stands still

Bell Potter

Stockbroker

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

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.

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.