The Bega Cheese Ltd (ASX: BGA) share price is up around 7% after reporting its FY20 result.
Bega FY20 result
Bega said that its revenue grew by 5% to $1.49 billion.
Looking at the underlying result, which Bega thinks better reflects the performance of the business, EBITDA dropped by 2% to $103 million (click here to learn what EBITDA means), EBIT fell 11% to $57.2 million and net profit after tax rose 3% to $31.9 million. Profit/earnings per share (EPS) was flat at 14.9 cents.
The reported statutory numbers looked much better. Statutory EBITDA grew by 11% to $87.8 million, EBIT rose by 48% and net profit grew 384% to $21.3 million.
Bega was pleased to say that this result was at the upper end of its guidance provided to the market on 29 October 2019.
Bega said that strong growth in the Australian and the international branded business did not entirely offset the impact of reduced margins in Bega Cheese’s bulk dairy ingredients and nutritionals business.
The dairy business said that costs totalling $15.2 million for legal fees and costs associated with the information systems upgrade activities have been ‘normalised’ in the result for the period. This was less than the $26 million incurred last year.
It has also completed the commissioning of the $38 million lactoferrin facility at Koroit.
Dividend
Bega declared a final dividend of 5 cents per share, bringing the full year dividend to 10 cents per share.
Net debt reduced by $51.8 million to $236.4 million.
Outlook
Bega said it’s well placed for EBITDA growth in FY21. Seasonal conditions are “much improved” compared to recent years with industry supply expected to increased in FY21.
The business seems like it has turned around. The next few years could be good for the Bega share price, but it operates a bit too much like a commodity stock for me to buy it. Commodity businesses don’t have much control over their prices, so they just have to take what they can get. That’s not the type of business I like to own. Bega is reliant on dairy prices and getting good prices from its customers like the supermarkets.
For a food buy I’d rather invest in something like Bubs Australia Ltd (ASX: BUB), Tassal Group Limited (ASX: TGR) or Vitalharvest Freehold Trust (ASX: VTH).
