Sentiment is so destructive. Market cap is now below 900 million, as opposed to acquisitions in recent years totaling (I think?) over 1 billion. So with debt down to a couple of hundred million, the original dairy business , which is not insubstantial, seems to be “effectively free”.
Ok, dairy has big challenges, but…worth nothing? I don’t think so. So, did we overpay for the brands we’ve added in recent years? I don’t think so…I think we actually got a very good price for Lion, as someone wanted to pay considerably more and wasn’t allowed to, allowing Bega to swoop. I haven’t noticed anyone strongly questioning the prices paid to acquire the vegemite and the spread brands…I’ve noticed suggestions we may have moderately overpaid.
Synergies relating to all these purchases are now well established, effectively building a moat relative to the prices paid.
So the problem is we are not making much money at the moment, due to the dairy issues, which has led to a dividend unattractive even with the present seemingly low share price (it’s historically a growth company that reinvests the bulk of its profits aiming for growth) and of course, very poor sentiment.
That sentiment will turn at some point.
I cannot help but feel that when we get on the other side of the coming economic downturn, internet rates start dropping, and the share market rallies, companies with a market cap seemingly less than the sum of its parts simply won’t be found. I am thinking Bega is a company that, while every “instinct” tells us to dump it right now, we should in fact be accumulating it, and not “overthinking it”. A lot of folks are just dumping, without much thought about the value of its assets. I think we should be obliging them. I acknowledge I have said this before, at higher prices. But below $3, this seems quite compelling to me, simply based on the prices paid for recent acquisitions which aren’t going too badly.
