BGA – Morgans rates the stock as Hold

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Bega Cheese has downgraded FY19 guidance for the second time. Underlying operating earnings (EBITDA) have been lowered to $113-117m versus prior guidance of $123m.

The company has noted competitive pressure from processors in light of the reduced Australian milk pool. Morgans interprets this to confirm prior thinking that the company has been overpaying for milk.

The competitive pressure is expected to continue into FY20 and the Australian milk pool is forecast to again contract by -3-5%. While the short-term outlook is tough, Morgans maintains a Hold rating. Target is reduced to $4.10 from $4.60.

Sector: Food, Beverage & Tobacco.

Target price is $4.10.Current Price is $4.13. Difference: ($0.03) – (brackets indicate current price is over target). If BGA meets the Morgans target it will return approximately -1% (excluding dividends, fees and charges – negative figures indicate an expected loss).

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