Bega Improves Profitability Through Mix Shift, but Shares Look Expensive; FVE Raised 4% to AUD 5.00

We raise of fair value estimate for Bega Cheese by 4% to AUD 5.00 per share due in equal parts to improving margins in the bulk business and time value of money following the first half fiscal 2021 result. First half normalized EBITDA increased 51% relative to the prior corresponding period to AUD 73 million as a shift toward higher-margin products within the bulk business offset lower direct milk volumes and weaker commodity milk prices. Bega completed the acquisition of Lion Dairy and Drinks in January 2021 and we forecast the acquisition to contribute AUD 12 million of EBITDA in the second half. Despite slightly softer revenue than anticipated, earnings were broadly in line with our expectations and we maintain our fiscal 2021 EBITDA forecast of AUD 138 million. Bega declared an interim dividend of AUD 0.05 per share, in line with our unchanged full-year forecast of AUD 0.10 per share.