ASX:BGA
Bega Cheese Ltd
Investment Summary
The fund managers believe that Bega Cheese Ltd (BGA.ASX) is at a pivotal moment as signs indicate a potential bottoming out of the decline in milk supply, which has negatively impacted the industry. Despite challenges, such as labour shortages and inflationary pressures, they note that the company's transition from a bulk dairy operation to predominantly branded sales has enhanced its pricing power, with 85% of sales now resilient to market fluctuations. Recent improvements in export prices, coupled with a reduction in industry processing capacity due to competitors streamlining operations, provide a constructive outlook. Although the share price experienced fluctuations, the fund managers believe that the underlying business fundamentals remain strong, and further cost reductions alongside stabilizing foreign prices could lead to a favorable recovery for Bega Cheese.
Commentary From The Managers
Spheria Asset Management
31 Mar 2024
$4.16
- Bega Cheese (BGA.ASX) share price was largely flat over the month, underperforming a strong market.
- The company reported 1H24 results in February, showing branded revenue growth offset by weakness in bulk due to low commodity prices.
- There was a late improvement in milk supply, enabling Bega Cheese to exceed market expectations.
- The decline in Australian milk supply in recent years has pressured processors to prioritize market share over industry returns.
- Management indicates potential bottoming out of milk supply decline and easing competition, presenting a key inflection point for the industry.
- Recent improvements in export prices could further benefit the market.
- Despite a stock re-rating in the past six months, improved earnings support Bega Cheese's value outlook.
- Spheria Asset Management continues to hold due to the strong branded portfolio and underlying value of the business.
Spheria Asset Management
30 Sept 2023
$2.49
- Bega (BGA.ASX) share price fell 16% in September following a weak result in August.
- Spheria Asset Management acknowledges ongoing issues impacting Bega and the dairy industry, including labour supply shortages and inflationary pressures.
- Export prices for milk powders and cheeses have declined, affecting the commodity side of the business.
- Spheria believes these challenges are cyclical and expects a recovery, with some recent signs of pricing improvement.
- The company is shifting from a bulk dairy focus to a predominantly branded model, with 85% of sales having pricing power.
- Future cost reductions and improved export prices are anticipated to enhance the business outlook.
- A reduction in industry milk processing capacity is happening, supported by Saputo's rationalisation of its manufacturing footprint in Australia.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.