Why the Bega Cheese (ASX:BGA) share price just charged to a 52-week high

The Bega Cheese Ltd (ASX:BGA) share price is charging higher on Wednesday and hit a 52-week high this morning. Here’s why…

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The market may be tumbling lower today but that hasn’t stopped the Bega Cheese Ltd (ASX: BGA) share price from charging higher.

In morning trade the diversified food company’s shares are up almost 4% to a 52-week high of $6.01.

This latest gain means the Bega Cheese share price is up over 15% since the start of the year.

Why is the Bega Cheese share price at a 52-week high?

Investors have been buying Bega Cheese shares today following the release of a strong half year profit result.

For the six months ended 31 December, the company reported a 5% decline in revenue but a 98% increase in normalised profit after tax to $29.7 million.

In respect to its revenue, management advised that the decline relates to a number of factors. This includes the conclusion of the milk supply guarantee arrangements at Koroit, ongoing competition for milk resulting in decreased volumes, a reduction in global commodity prices, currency headwinds, and the exiting of lower value contract manufacturing agreements for cheese.

Positively, Bega Cheese continues to grow its Australian and international branded business, high value nutritional powders, and lactoferrin sales. This has led to a more profitable sales mix and an increase in its margins compared to the prior corresponding period.

However, despite the profit growth, the Bega Cheese Board opted to only maintain its interim fully franked dividend at 5 cents per share. It advised that this reflects prudent cash management as it integrates the Lion Dairy and Drinks acquisition, which completed on 25 January.

Outlook

No guidance has been provided for the full year but the company’s performance is expected to be boosted by the aforementioned Lion Dairy and Drinks business.

Executive Chairman Barry Irvin commented: “The acquisition delivers important industry consolidation and value creation with synergies across the entire supply chain. The expanded product range, manufacturing and distribution infrastructure and brand portfolio realises our ambition of creating a truly great Australian food company.”

“Bega Cheese has continued to invest in the development of new products across the spreads, snacking and dairy portfolio, and the acquisition of market leading iconic Australian brands in LD&D provides further opportunities to extend the product range. The international branded food business has continued to grow, despite the impact of COVID-19 on the foodservice channel in some key export markets. The LD&D acquisition provides a platform for further growth in international markets and provides a market presence to support innovation and a closer connection to customers and consumers.”

One slight disappointment is the Bulk segment, which has been impacted by COVID-19, particularly in the infant formula category. The company notes that customers have been impacted by trading conditions in key markets and the effects of COVID-19 on international travel and the Daigou channel.

The outlook for this category remains challenging and Bega Cheese continues to respond through diversification in its revenue streams, through product innovation, and new customer and channel development.

But judging by the Bega Cheese share price performance today, investors are happy to look beyond this short term weakness and focus on the long term.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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