The Bega Cheese Ltd (ASX: BGA) share price has taken a dive today following the release of the food company's half-year results.
At the time of writing Bega's shares are down 4% to $7.05.
For the six months ended December 31, Bega Cheese delivered half-year revenue from ordinary activities of $705.2 million and half-year profit after tax of $20.6 million. This was a 13.5% and 31.1% increase, respectively, on the prior corresponding period.
Earnings per share came in 8.7% higher at 11.2 cents or 20 cents per share on a normalised basis, allowing management to increase its interim dividend by 10% to 5.5 cents per share.
The acquisition of the Mondelez Grocery Business, which included the Vegemite brand, has been the driver of this top line growth. This business contributed net revenue of $136.6 million to its Bega Foods segment during the period, compared to nil in the prior period.
Another key driver of growth was its Tatura Milk segment. It generated a statutory profit after tax of $27 million, an increase of $19.4 million from the prior period thanks partly to a 33% increase in milk intake from suppliers to 238 million litres.
This offset a sizeable decline in private label cheese sales due to the loss of the Wesfarmers Ltd (ASX: WES) supply contract. Bega Cheese now only services the private label cheese requirements of Woolworths Group Ltd (ASX: WOW), whereas during the prior corresponding period it was servicing both Woolies and Coles supermarkets.
Although the market has responded negatively to the results release, executive chairman Barry Irvin appears to have been pleased with the half. He stated that "the business has performed well particularly when you take into account the significant corporate costs associated with the recent acquisitions and the highly competitive environment the business is operating in."
For the full-year management has provided normalised EBITDA guidance of between $105 million and $115 million, up from $70.6 million in FY 2017.
Should you invest?
Whilst the result wasn't as strong as many had hoped, I still felt it was a solid result and believe the decline today could be a buying opportunity for patient investors.
Based on its guidance, I expect Bega Cheese to deliver normalised earnings per share of 30.8 cents in FY 2018. This prices its shares at approximately 23x forward earnings today. I don't think this is especially expensive given its solid future growth prospects.
