The Bega Cheese Ltd (ASX: BGA) share price has risen by 304% over the last five years. I wouldn't have thought that a cheese company could beat the market so convincingly.
In the past, I had also thought that there's no way a2 Milk Company Ltd (Australia) (ASX: A2M) could keep going up, but it did. So, perhaps Bega Cheese is worth a closer look. As a reminder, here are some of the standout numbers from its recent report:
- Revenue growth of 3%
- Earnings before interest, tax, depreciation and amortisation (EBITDA) up 250%
- Normalised EBITDA up 7%
- Earnings per share up 381%
- Normalised earnings per share up 4%
I was impressed with those numbers and the market was too, the share price has risen by 6% since the report.
Bega has done a great job of expanding beyond just being a cheese company. Cheese blocks and slices don't have a lot of growth potential with Aldi, Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES) marketing their own brands and wanting to lower prices.
Bega made a smart move by acquiring Vegemite because there is a lot of cross-selling that can be done with Vegemite and cheese – a true Australian classic.
There is a push against diets that have a lot of sugar and carbohydrates, so Bega's products are in the right food group in that regard.
It wouldn't surprise me to see Bega add other food brands to its stable which complement its cheese products. This would allow the company to cross-sell both brands successfully as it is doing with Vegemite.
Foolish takeaway
Bega is trading at 25x FY18's estimated earnings with a grossed-up dividend yield of 2.08%. This is fairly expensive, so I wouldn't be a buyer at today's prices, but it is one to keep on the watch list and consider if it drops 10% to 20% from today's level.
