The Bega Cheese Ltd (ASX: BGA) share price briefly hit a 52-week low of $4.56 on Wednesday before pushing 2% higher to $4.92 following the release of the food company's half year results.
Here's how Bega performed in the first half compared to the prior corresponding period:
- Revenue increase 6% to $649.2 million.
- Normalised EBITDA fell 17.4% to $57.9 million.
- Normalised half year profit down 48.3% to $18.9 million.
- Earnings per share of 9.5 cents.
- Interim dividend flat at 5.5 cents per share fully franked.
Overall, I thought this was a very disappointing half from Bega and can't say I'm surprised to have seen its shares briefly hit a new 52-week low this morning.
Management advised that its financial performance has been impacted by some short term challenges. These challenges include milk price and milk volumes in some regions, slower first half sales in nutritionals, a significant build in inventory as a result of the Koroit acquisition, and higher corporate costs.
However, management believes that the company's strategic focus remains robust and the positioning of the business strong. It intends to continue to grow its milk supply while directing that raw material into higher value ingredients and consumer good products.
In addition to this, management advised that it will look outward while focusing on maximising the benefits of recent acquisitions. This includes the creation of a "new ventures business platform in which the company may take equity positions in smaller, start up, innovative style businesses that will develop with entrepreneurial enthusiasm and the benefit of knowledge, experience and potentially supply from a larger business such as Bega."
Incidentally, just this morning the company's Tatura Milk Industries subsidiary entered into an agreement with Bubs Australia Ltd (ASX: BUB). The goats milk infant formula company has signed a long-term strategic supply partnership with Tatura.
Bega chief executive officer, Paul van Heerwaarden, said: "We are excited to be partnering with Bubs Australia in this new venture. We have been working closely with Bubs to develop an infant formula of the highest integrity and quality aimed at satisfying the increasing demand for both goat milk formula and a product that can be genuinely positioned as Australian. We look forward to helping Bubs achieve its growth ambitions."
What's next?
Bega has retained its normalised full year EBITDA guidance of $123 million to $130 million, though it has warned that recent farm gate milk price increases mean the lower end of the range is more likely.
The bottom end of its range implies year on year growth of 12% on last year's normalised EBITDA of $109.6 million.
Should you invest?
Bega's shares are currently changing hands at 22x estimated normalised forward earnings. I don't think this is overly demanding if the company delivers on its 12% normalised EBITDA growth in FY 2019.
In light of this, it could arguably be worth considering at current levels. Though my preference in the consumer staples space would be A2 Milk Company Ltd (ASX: A2M).
