Bega Cheese Ltd (ASX: BGA) shares have continued their decline on Thursday.
In morning trade, the diversified food company’s shares have dropped 3% to a new decade-low of $3.02.
This means they are now down over 21% since the start of the year.
Are Bega Cheese shares a bargain buy?
Unfortunately, the broker community doesn’t appear to believe that investors should be jumping in just yet.
No less than three brokers have downgraded Bega shares to the equivalent of hold ratings over the last 24 hours in response to its trading update. This includes Bell Potter, Morgans, and Ord Minnett.
In respect to Bell Potter, its analysts highlight that farm gate milk prices are at war with reality. It said:
We had upgraded BGA early in CY23 reflecting a view that following a reduction in global ingredient prices and subsequent falls in more dynamic offshore markets, rationality would prevail and farmgate milk prices (FMP) would fall. While initial opening prices looked optimistic, this has quickly unwound with pricing moving from a minimum of ~$8.65/KgMS to ~$9.20/KgMS.
This has ultimately led to the broker downgrading its profit estimates for Bega materially in the near term. The broker adds:
We downgrade our NPAT forecasts by -50% in FY24e and -40% in FY25e, reflecting a higher FMP and higher lease costs, reflecting both the timing and value of the Vegemite Way sale.
Bell Potter has a price target of $3.50 on Bega’s shares.
Another broker sitting on the fence
Over at Morgans, its analysts are saying similar things. The broker said:
Pleasingly, Bega Cheese’s higher quality Branded business is now performing strongly. However, its Bulk business is loss making due to the material fall in global dairy prices and Australian processors are overpaying for milk given fierce competition.
The challenging operating environment for the Bulk business is likely to remain near term causing BGA to announce a new cost out program and the impairment of its assets. We have made material downgrades to our FY24/25 forecasts. The turnaround we expected at BGA under a new management team has now been pushed out while the dairy industry acts irrationally and therefore earnings uncertainty remains high.
Morgans has a hold rating and a $3.45 price target on its shares.
