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Where is the Bega Cheese share price headed in August?

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The Bega Cheese Ltd (ASX: BGA) share price jumped 2.0% higher yesterday as the S&P/ASX 200 Index (ASX: XJO) got off to a strong start.

The Bega Cheese share price is now up 6.5% in 2020 but where is it headed in August?

Why 2020 has been a good year for Bega

For one thing, supply costs are remaining low. Farmgate milk prices remain depressed, which is good for Bega’s profit margins.

There’s also been strong demand for Bega’s products in the first half of 2020. Bega operates in the Consumer Staples sector, which is good for earnings stability.

Strong supermarket sales have certainly helped and I’m hoping for solid earnings across Bega’s spreads, dairy consumer packaged goods, nutritionals and dairy ingredients.

Demand from China was somewhat subdued in Bega’s half-year result in February but I think it still represents a strong growth corridor.

Where will the Bega Cheese share price go in August?

The Bega Cheese share price will be worth watching in August.

The Aussie dairy group hasn’t provided an exact date for its full-year results announcement but reported last year’s result on 28 August 2019.

Slowing sales to China is a potential area of concern for Bega. However, if the August full-year result indicates steady demand, I think Bega’s shares may continue to climb in 2020.

The other potential headwind is an increasing number of homebrand products. These brands from the likes of Coles Group Ltd (ASX: COL) are putting pressure on both volume and pricing for Bega.

That’s why I think the August full-year result is one to watch. It could be the key to understanding where the Bega Cheese share price is set to end the year.

Foolish takeaway

The Bega Cheese share price has been a strong performer in 2020 and the full-year result looms as the key for further gains.

I’d want to see steady earnings and a solid growth outlook, particularly for Asia.

Bega shares currently trade at a price-to-earnings ratio of 64.2, which is a bit on the high side. That means I won’t be buying until I see the company’s latest financials later this month.

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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET. 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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