The Bega Cheese Ltd share price is up 63% in 2017

Credit: Steel Wool

The Bega Cheese Ltd (ASX: BGA) share price has gone gangbusters in 2017 returning more than 63% to investors after the dairy group completed its $460 million acquisition of Mondelez Grocery Business including its Vegemite and peanut butter businesses.

Following the Vegemite deal the group decided to sell some manufacturing facilities to infant formula retailer Mead Johnson for up to $200 million, while still securing revenue and income streams from these plants over the 10 years ahead.

In effect Bega’s management have leveraged the booming demand for baby formula to diversify its business on decent commercial terms. It already supplies infant formula business Bellamy’s Australia Ltd (ASX: BAL) and is well positioned to service further demand.

In June the company raised $160 million from existing retail and institutional investors at a price of $5.35 per share to fund the balance required on the Vegemite deal, with the stock changing hands for $6.91 today.

It also recently reconfirmed that it expects to post operating income (EBITDA) of $67.4 million in FY 2017. The Vegemite acquisition is expected to bring on $40 million to $45 million in EBITDA in its first full year of operations after a transformational FY 17.

Analysts are estimating that it could earn 29 cents per share in FY 18, which would place it on around 24x forward earnings.

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

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