Why the Bega Cheese Ltd Share Price Fell 5.67% Yesterday

The Bega Cheese Ltd [ASX:BGA] share price plunged over 5% yesterday after emerging from its trading halt.

Bega, one of Australia’s major household dairy companies, has seemed to fall behind in the minds of consumers over the last couples of years. Some would say that newer companies like A2 Milk Company [ASX:A2M] and Bellamy’s Australia Ltd [ASX:BAL] are making more headway in the market.

Could it be the case that in today’s dairy-free, paleo-obsessed, diet-conscious communities, cheese has fallen off the table, so to speak?

Bega’s share price closed at $7.15 yesterday.

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Why Has the Share Price Fallen?

Whatever the wider reasons for Bega’s decline, it’s clear that yesterday’s fall is a consequence of the company’s fundraising announcements.

The company completed an institutional share placement to raise approximately $200 million. Management communicated that this was to fix up its balance sheet after recent investments.

The funds were raised at $7.20 a share, which was a 5% discount to the last close price. With the share price lagging below the offer price, it’s unlikely Bega will be able to raise any further dollars though its proposed share purchase plan.

Bega has indicated it attempts to raise a further $50 million.

Is it worth investing?

After Bega took a stake in superstar honey producer Capilano Honey Ltd [] this year, many were excited.

But the company’s investment in a $250 million dairy processing plant, and other costs obviously incurred to warrant fundraising to balance the books, is causing the share price a bit of grief.

And adding 27.8 million new fully paid ordinary shares to the registry will have caused significant dilution for existing shareholders.

However, if the company’s strategy works to better place itself for future acquisitions, then this could pay off for Bega in the long term.

For now, investors are likely to shop around other food retail companies, as there’s a lot of exciting stuff going on in this sector – particularly with some of our more premium brands now in demand from China.


Lauren Dinse

For Money Morning

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Money Morning Australia