Bega Cheese Ltd (ASX: BGA) is a major Australian food and dairy company.
It's the company behind products like Bega cheese, Vegemite, Dairy Farmers, Big M, Yoplait, Dare, Pura and more.
Its share price is up 26.39% over the last year.
A new report from Macquarie included a price target of $6.40, which indicates a 17.2% upside from its current price.
One factor influencing this positivity is Bega's aim to buy dairy company Fonterra's Oceania business for ~NZ$4 billion.
What did Macquarie have to say about the acquisition?
Bega is seeking informal merger clearance from the ACCC on the Fonterra Oceania business.
What does this mean?
Bega is proactively seeking informal ACCC clearance to merge with Fonterra Oceania.
However, The ACCC will be focused on ensuring that a merger of these two businesses will not substantially lessen competition, and materially impact prices paid to dairy farmers.
Fonterra Oceania earned $460m gross profit in FY24 — adding this could meaningfully boost Bega's scale.
As an Australian-owned company, Bega doesn't need Foreign Investment Review Board approval, making the process simpler.
According to Macquarie, there are strong cost-saving opportunities in:
- Supply chain
- Procurement
- Corporate overhead
Furthermore, Bega's management has successfully delivered synergies in past acquisitions.
In summary, Macquarie sees positive deal potential with good strategic fit and cost-saving opportunities, but regulatory approval is not guaranteed, and there's a margin gap to close.
Despite uncertainty about i) whether Bega's interest will be considered by Fonterra; and ii) potential ACCC concerns, FY28 Strategy execution is not contingent on M&A. Cost-out and top-line growth opportunities to support organic 4-year EPS CAGR of 33% to FY28.
Ultimately, the broker sees the upside outweighing the risks over the next year based on the updated 12 month price target.
What are other brokers saying?
Other brokers also seem bullish on Bega shares in the short term.
Bell Potter has a "buy" recommendation and $7.00 price target on Bega shares.
Earlier this month, the Motley Fool's James Mickleboro reported that Bell Potter believes that if Bega Cheese demonstrates that it is on track to achieve its $250 million EBITDA target in FY 2028, its shares could be heading as high as $8.50.
Elsewhere, online brokerage platform has an average price target of $6.00 and Trading View has a 12 month price target of $6.46.
