Is Bega Cheese Ltd a buy after its blockbuster Vegemite acquisition?

Bega Cheese Ltd (ASX:BGA) acquires Vegemite from Mondelēz. Does this make the dairy company a buy?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The shares of Bega Cheese Ltd (ASX: BGA) will be on watch this morning after the dairy company announced the $460 million acquisition of the majority of Mondelēz International's Australia and New Zealand grocery and cheese business.

The deal means Bega will soon add the iconic Vegemite brand to its arsenal, as well as brands including ZoOSh salad dressings and Bonox beef extract.

Furthermore, the company will acquire the license for Kraft products such as peanut butter, nut spreads, processed cheese slices, ambient cheese spread, mayonnaise, and parmesan cheese until December 2017. Management has a brand rationalisation and transition strategy in place to support these businesses once the license expires.

Bega will also take control of Mondelēz's world-class manufacturing facility in Port Melbourne. The 6.3 hectare site has five highly automated production lines and room for volume expansion.

Importantly the newly acquired business is expected to be strongly earnings accretive. In the first full year of operation management expects the acquisition to generate pro-forma net revenues of $310 million and earnings before interest, tax, depreciation, and amortisation of between $40 million and $45 million.

Although it will be funded by bank debt, management says it has near-term corporate opportunities to pay down debt. However it has warned that if these opportunities are unsuccessful a capital raising may be considered at a later date.

I think this is a great acquisition and would expect to see the market react positively to the news this morning. As well as being iconic, the Vegemite business has strong cash flow generation and a large share of the growing spreads market.

With its shares down 34% in the last 12 months and changing hands at 22x trailing earnings, I feel this acquisition could mean Bega is worth a closer look.

My preference in the dairy industry is still a2 Milk Company Ltd (Australia) (ASX: A2M), but Bega wouldn't be too far behind now.

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »