The Bega Cheese Ltd (ASX: BGA) share price fell as much as 7.5% to $7.09 in early trade before recovering to be down just 2% at $7.50 at the time of writing.
Investors hit the sell button after the food company released its full year results this morning. Here's how Bega Cheese performed in FY 2018 compared to a year earlier:
- Revenue up 17% to $1,440 million.
- Export sales increased 29% to $430 million.
- Statutory EBITDA fell 60% to $92 million.
- Normalised EBITDA grew 55% to $109.6 million.
- Normalised profit after tax increased 45% to $44 million.
- Diluted earnings per share of 15.6 cents.
- Final dividend of 5.5 cents per share, bringing its full year dividend to 11 cents per share.
- Outlook: Domestic retail market remains highly competitive, but Bega Cheese is well positioned to take advantage of several trends.
Bega Cheese's solid top line growth was driven largely by the acquisition of the Mondelēz grocery business, growth in international sales, and increases in direct farm milk intake.
This offset weakness in its cheese cutting, packaging, and processing businesses which continue to be impacted as a result of a highly competitive domestic environment and changes in its retailers' mark customers.
Management has advised that the Mondelēz grocery business has been successfully integrated and is now known as the Bega Foods business. The business was also boosted with the acquisition of the Peanut Company of Australia (PCA). PCA is Australia's largest peanut processor and management believes it will allow the company to develop a fully integrated supply chain from farmer to consumer for its peanut butter and other consumer peanut products.
Outlook.
Management has warned that the domestic retail market remains highly competitive, but it believes the company is well positioned to take advantage of several trends. These include changes in how consumers purchase and consume food and how consumers are becoming increasingly concerned with food safety, provenance, and nutrition.
It believes that the company's marketing experience, product development capability, and flexibility in manufacturing, allows it to quickly respond to these trends.
Should you invest?
I estimate that normalised earnings per share (which exclude one-off significant items) came in at 23.8 cents in FY 2018, meaning Bega Cheese's shares are changing hands at approximately 30x earnings.
I think this is a touch expensive and would only invest if I were confident that the company would deliver strong profit growth in FY 2019. In light of this, I would class Bega Cheese as a hold until I've seen its first half results.
Until then, I would suggest investors consider sector peers A2 Milk Company Ltd (ASX: A2M) and Bellamy's Australia Ltd (ASX: BAL).
