We recently researched Bega Cheese (ASX:BGA) in The Dynamic Investor after the Company held a Strategy Day in which it outlined its 5-year plan. We took a POSITIVE view on the fundamentals. The key reasons were that the long-term targets were achievable and that there were growth opportunities from international expansion and/or acquisitions.
With the shares having bounced higher since our report, we consider whether current levels remain an attractive entry opportunity.
About Bega Cheese
Bega Cheese Limited (BGA) is engaged in: i) The processing, manufacturing and distribution of dairy and associated products to both Australian and international markets: and ii) The processing and manufacturing of spreads and condiments for consumer markets.
In August 2020, BGA changed its business segments to the following:
• Branded: the manufacture of bulk ingredients into value added consumer products for internal or external brands;
• Bulk: the manufacture of bulk dairy ingredients, nutritional and bio-nutrient products, which are sold primarily to food manufacturers.
The Branded segment accounts for ~85% of group revenue, with the Bulk segment accounting for the remainder.
Key Fundamental Drivers
Long-Term Targets Seem Achievable
BGA has issued its initial FY31 baseline EBITDA target of $310m+ (EBITDA in FY25 was $202m). In setting its FY31 targets, the Company expect the Branded segment to be the key driver of earnings growth. This is expected to be mostly driven by continued investment in high-growth categories such as milk-based beverages and yoghurt. In these categories, growth has been +8-10% per annum and where BGA have committed to a +25% uplift in yoghurt capacity.
Management defines five “power brands” across the portfolio: Dare, Dairy Farmers, Farmers Union, Vegemite and Bega. Across these brands, its sees two major life-cycle phases: “Grow” and “Nurture”. The group is especially positive about the growth characteristics of yoghurt and milk-based beverages.
The FY28-31 baseline projections appear highly achievable based on current dynamics in the categories being targeted. Further, it requires BGA to execute at a rate not inconsistent with what they have achieved over the FY23-26 period. If successful in shifting milk supply further into these categories, it would also materially reduce the Company’s exposure to dairy-based commodities. The exposure to the latter has already essentially halved over the life of the FY28 plan.
Cost Cutting Opportunities to Support Margin Expansion
Over the last three years, BGA has structurally improved its cost base through site consolidation, supply chain efficiencies and lowering group headcount.
BGA’s current national footprint with overlapping capacity and capability provides it with an opportunity to save further costs and extract additional value. Optimising the assets by having longer runs working assets harder will reduce conversion costs. The Company can also improve plant efficiency and competitiveness through reducing complexity at its sites.
International Expansion Present Growth Opportunity
BGA’s International business has seen ~45% total growth in revenue between FY23 and FY26, with EBITDA increasing 3.5x. Across the International business, management is prioritising the Middle East, North Asia and South-East Asia, given their high potential for dairy growth. In particular, South-East Asia is the top priority market, given solid real GDP growth and urbanisation/globalisation. Management noted that by 2040, ~120 million (compared to 30 million in 2022) households across South-East Asia will have annual incomes of >US$15,000. This income level drives a higher propensity to consume non- traditional food products, such as dairy.
Balance Sheet Strength to Pursue Merger & Acquisition Opportunities
The sale of some non-core assets resulted in gearing (on a net debt to EBITDA basis) declining to a greater extent than expected. Gearing as at as at 31 December 2025 was 1.2x and at the lower end of the Company’s target gearing range of 1-2x. In the absence of Merger & Acquisition (M&A), gearing is expected to reduce significantly in FY27 (<1.0x), as further asset sales are expected.
BGA highlighted how its strong balance sheet is well-placed to support future growth opportunities and potentially, further industry consolidation. In terms of potential M&A opportunities, the Company is focused on large, established, mainstream brands. In addition, the Company look for potential targets with strong adjacency for dairy or non-dairy and opportunities for market expansion/consolidation.
At the recent Investor Day, BGA expressed ambition to conduct at least one acquisition by FY31, with consideration from a small bolt-on acquisition through to a ‘transformational’ acquisition.
Fundamental View
We continue to view BGA shares favourably. The shares are currently trading on a 1-year forward P/E multiple of ~21.5x, which remains well below the 5-year average of ~25x. It is also below the bottom end of the trading range over the last two years (~22-32x). The current multiple is also undemanding in the context of an EPS growth profile of +10% over FY26-29 on a CAGR basis.
Global dairy prices remain strong and the Company has a strong track record in achieving medium-term strategic targets. Further, there is upside to EPS growth estimates from potential EPS-accretive acquisitions given the current balance sheet strength.
Charting View
Bega spent most of 2025 trading in a range between $5 and $6 before it broke out later in the year. However, it failed to trend higher and instead has fallen back into the range. With the stock now at the lower end of the range and bouncing off it, we have a level where it is now a buying opportunity. Tight stops can be considered just under $5 as we do not want to see it break support.
Michael Gable is managing director of Fairmont Equities.
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