Bega share price slides as milk prices skim away

The Bega Cheese Ltd (ASX: BGA) share price is slipping today amid the milk price in Victoria increasing 30%.

The dairy company’s share price is trading at $3.40 today, a 4.23% fall. For perspective, the S&P/ASX 200 Index (ASX: XJO) is down 0.11% today.

Let’s take a look at what Bega reported today.

What did Bega report?

Bega reported farm gate milk prices in Victoria in FY23 have jumped 30% higher than FY22. This is more than the previous expectations in June which were for a 15 to 20% boost to the price of this milk.

Explaining this difference, Bega said there has been strong competition among milk processors in June and July.

In a trading update released today, Bega said:

The farm gate price increases will benefit farmer suppliers, impact all Australian dairy companies, and is already being reflected in higher product prices in the retail and food service markets.

Despite it still being early in the financial year, Bega is forecasting an FY23 EBITDA of between $160 and $190 million.

Commenting on the outlook for FY23, Bega added:

Bega Cheese expects that the company’s FY2023 performance will be impacted by the delay in timing of some of these higher product prices and the finalisation of secured milk volumes during July.

Bega predicted it will recover the higher costs linked to the boost in farm gate milk prices via the global commodity market and retail and food service markets.

The company said its earnings guidance for FY22 of an EBITDA of between $175 and $190 million “remains current”. In April, Bega warned that COVID-19 related costs would be more than $40 million for the full year. Floods in February and March 2022 also had a major impact on customer deliveries.

Meanwhile, analysts at Bell Potter have placed a “hold” rating on the company’s share price with a $3.80 price target, down from $4.20.

Analysts lowered the price target due to the “ongoing dislocation in farmgate pricing and ingredient pricing”.

Bega share price snapshot

The Bega share price has descended 38% in the past year, while it has lost nearly 42% year to date.

In the past month, the company’s shares have shed nearly 28%.

For perspective, the S&P/ASX 200 Index (ASX: XJO) has fallen about 10% in the past year.

Bega has a market capitalisation of about $1 billion based on today’s share price.

The post Bega share price slides as milk prices skim away appeared first on The Motley Fool Australia.

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Motley Fool contributor Monica O’Shea has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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