Is it 'better buy Bega' after its share price drops 34% in a year?

The Bega Cheese Ltd (ASX: BGA) share price has dropped 34% in a year – what's behind the fall and are these shares now a buy on the ASX?

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Blessed are the cheese makers, those mythical alchemists who conjure little wheels of heaven to have with our wine and crackers. With that in mind, let's talk about Bega Cheese Ltd (ASX: BGA).

What does Bega do?

Bega is a diversified food company producing some of Australia's most famous brands. Besides a range of cheeses, there's peanut butter, dips, mayo and dressings, and since 2017 they have been the custodians of our national spread, Vegemite. Investors will have been disappointed with the 34.72% decline in share value over the past 52 weeks, and I'm curious to understand what's been going on.

What's going on with the Bega share price?

Is it the cheese? The peanut butter? Surely it can't be the vegemite. Onward, cheese curious readers – let's explore this some more.

Bega is currently trading on the ASX at $4.76, when a year ago it was trading at $7.41. It peaked at $8.81 in July 2018 before the trendline headed downward, settling in around the $4.30–$5.30 mark for the past couple of months. The company issues a fully franked dividend of 11 cents per share (2.26% dividend yield).

Looking back at its half-yearly reporting, there were some challenges facing management. These included the price of milk and a decreased peanut supply driving up the costs of making peanut butter. There were some green shoots coming through, with revenue up 6% and the purchase of some key assets, including Saputo's Koroit milk processing facility, as well as the decommissioning of others. You can see that the company is aiming to lay the groundwork for some sustainable growth. From the outside you get a sense that there's been significant change within the organisation and, to be fair, it can take more time than investors would like to fully integrate change strategies across a company with more than 2,000 employees.

We can't talk about Bega without mentioning the long running legal dispute with Kraft Foods over the design and packaging of peanut butter products. Last month, Bega finally (and successfully) was able to put these actions to rest. The day the Federal Court made its ruling, investors cheered and rewarded the company with a 9% increase in share value. Yet, here we are almost exactly two months later with Bega trading 10.1% lower at $4.76.

It's fair to say that the conclusion of these legal issues wasn't quite enough to kick off some sustained upward momentum, but it should provide some clear air for the company to focus on settling some growing pains and bedding down the changes.

I'm cautiously optimistic that Bega, with its iconic brands, can bounce back and considering today's share price it just might be worth purchasing yourself a wedge of shares.

Motley Fool contributor JWoodward has no position in any of the 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 Scott Phillips.

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