In 2016,
Bega generates 1.2 billions revenue with 153 millions in gross profit and 29 millions in net profit (EPS: 18.9 c)
Cheese division contributed 13 millions in net profit, while Tatura milk makes up the rest, by earning 15.8 millions.
Bega cheese is valuable in terms of its brand and history, but its Tatura division is mostly in engaged in contracted manufacturing for infant formula with little differentiation from other processors.
Tatura milk(major partnership with Bellamy and Blackmores for infant formula) contributing about 54% of the net profit is vulnerable to Bellamy slow-down, when the introduction of Blackmores infant formula is ill-timely and won't contribute significant profit.
In my opinion, Bega value proposition mainly lies in its cheese. At the moment, I am only interested in investing in Bega for its cheese division, which generates about EPS of 8.4c.
BGA is on my watch list, but the price is just too high from my perspective. If it ever gets to $3 to 2 dollar range, I might reassess the company again.
Perpetual limit has 9.5% in Bega, after increasing its stake from the beginning from 2016 to Nov, potentially sitting at 30-40% paper loss.
Who knows. Maybe Bega is worth $7 dollar a share to Perpetual.
BGA Price at posting:
$3.88 Sentiment: None Disclosure: Not Held
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