Bega Cheese Preparing For Accelerated Growth

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The company is included in ASX200, ASX300 and ALL-ORDS

Post FY25, Management at Bega Cheese is guiding for much faster growth ahead, with potential upside from sector consolidation.

-Bega Cheese meets FY25 consensus in a difficult market
-Branded volumes flat, Bulk returns to profit
-Expansion in Asian markets and Foodservice
-Sector consolidation offers scope for acquisitions

By Mark Woodruff

FY25 results from Bega Cheese ((BGA)) released in August met consensus expectations, with ongoing earnings growth in Branded consumer products, despite a more difficult operating backdrop.

The smaller Bulk dairy ingredients division also returned to profitability, benefiting from a strong rise in dairy commodity prices over the past year.

Management pointed to a solid underlying performance, with reported results weighed down by restructuring costs tied to business improvement initiatives that are expected to strengthen the group’s future positioning.

Revenue remained flat at $3.54bn in FY25 and one-off restructuring costs led to a net loss of -$8.5m. More positively, underlying earnings rose 23% to $202m as cost savings took effect and the Bulk division provided a boost.

Bega engages in processing, manufacturing, and distribution of dairy and associated products to both Australian and international markets, while also processing and manufacturing spreads and condiments for consumer markets.

The Branded segment, (cheeses, milk, yogurts, spreads, and other packaged foods) contributes the majority of the company’s revenue and earnings. The much smaller Bulk ingredients segment (commodities like milk powder and bulk cheese) has lower margins and is more exposed to global price swings in dairy markets.

During FY25, Morgans explains the company experienced growth in grocery and Foodservice within Branded (explained in detail later in this article) offset by reduced foot traffic in impulse & convenience, and quick service restaurants, explains Morgans.

UBS points out Branded volumes were flat in FY25, while price gains contributed only 1%, which contrasts with a more typical environment in which Bega’s revenue model would deliver 2-3% growth from both volume and price.

Morgans explains the Branded division was lapping a strong prior period, while price increases proved difficult and out-of-home channels remained under pressure from cost-of-living impacts.

FY25 underlying net profit of $50.8m was up 74.0% on FY24, albeit -7% adrift of the consensus expectation. There was an unusually elevated 2H25 tax rate, Macquarie observes, reflecting circa -$3m in non-recurring tax charges.

Management aims to expand its value-added branded portfolio for steadier margins, while leveraging its chilled distribution network and direct farmer milk supply to stay competitive.

Recent challenges, competitive advantages

A key hurdle for Bulk has been managing high farmgate milk prices and other input costs, which squeezed margins across 2022–23. This pressure began to ease by late 2024 as global dairy prices rebounded and farm milk prices stabilised.

Another challenge across the business is softer consumer demand amid inflation, which management is addressing by emphasising the value of its core brands and focusing on staple products that remain in demand.

Competing with large processors like Saputo and Fonterra, the company’s advantages include a strong stable of Australian brands and an integrated supply chain.

Key brands and products

Bega has assembled a portfolio of well-known Australian brands. Its flagship Bega brand leads in cheese with around 16% of the retail cheese market.

In 2017 Bega acquired Vegemite, Australia’s iconic spread, along with other grocery lines. In 2021 the company acquired Lion Dairy & Drinks, thereby adding major dairy names such as Dairy Farmers and Pura (milk brands), the Dare iced coffee range, and the Australian license for Yoplait yogurt.

Bega also owns the Daily Juice line of fruit juices and sells peanut butter, honey, and cream cheese products from its various acquisitions.

Capital management

Ord Minnett suggests Bega’s stronger financial position creates opportunities for it to pursue strategic acquisitions which will support future growth initiatives.

Bega finished the period with net debt of $126.1m, with a leverage ratio of 0.8 times, down from 1.3 times at the end of FY24.

Foodservice

The company maintained strong market share in FY25 across core categories and continued to expand in Asian markets and Foodservice where the company supplies cafes, restaurants, caterers, and institutional clients.

Volumes in Foodservice grew at a high single-digit rate year-on-year in a subdued market, points out Macquarie, supported by earlier investment in sales teams and technology.

With dairy representing over 20% of the $60bn out-of-home market, Bega now ranks fifth or sixth in share across several key Foodservice categories.

Management has adopted a tiered approach to Foodservice growth, first building capability by hiring specialist talent before expanding its offering, explains Macquarie.

Focusing on deeper engagement with key customers, management is now preparing to target less structured accounts, such as hotels, schools, and hospitals.

FY28 targets

Management had been targeting over $250m of earnings by FY28 and a return on funds employed (ROFE) of over 10%.

At results, management stated it was “on track to exceed its EBITDA target”, which suggests upside risk to Macquarie.

FY28 targets include Bulk earnings of between $30-$40m. For FY25, earnings in this division were $39m, in a return to profitability after suffering a loss in FY24, thanks to a realignment between dairy commodity and farm gate milk prices, explains Macquarie.

Outlook

Management guided to FY26 normalised earnings of between $215-220m, in line with consensus and implying around 8% growth at the midpoint.

Branded is expected to drive earnings growth, while Bulk is enjoying a more steady outlook.

Bell Potter notes Bega Cheese has set out a strategy targeting more than 20% per annum EPS growth through FY28.

This broker adds further upside could emerge if the company takes part in the current wave of industry consolidation.

UBS explains the FY25 result coincided with major M&A news, as Fonterra announced the sale of its Consumer business to French dairy giant Lactalis for around NZ$3.8bn.

Fonterra’s Consumer business included brands like Mainland, Western Star, Perfect Italiano, and others which compete directly with Bega’s portfolio in Australia.

There are five daily monitored brokers researching Bega Cheese in the FNArena database, of which two are Buy-rated (or equivalent), two are on Hold, and Morgans sits midway between with an Accumulate rating.

Following FY25 results, the average target of the five brokers increased by 13 cents to $6.26, implying 15.2% upside to the $5.43 closing price on September 18.

Consensus forecasts, freshly updated post August’s FY25 release, are indicating shareholders should expect dividend payments of 14.2c and 17.4c this year and next, respectively good for yields of 2.6% and 3.2% respectively, at the current share price.

For more details: see Stock Analysis on the website.

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