Investors back Bega
INVESTORS and analysts are backing Bega Cheese to add value and grow earnings if its $319 million takeover bid for Warrnambool Cheese & Butter succeeds.
Bega shares have soared more than 100 per cent in the past 12 months, hitting a record high of $3.46 on Wednesday. Despite the strong share price run and the hefty bid for Warrnambool, major institutional investors including Perpetual and Karara Capital have upped their stakes in Bega in recent weeks.
Since deregulating in 2001, Bega has acquired two major cheese plants and swallowed up Tatura Milk Industries, growing earnings with each of its purchases. A strong full-year result and a track record of improving the businesses it buys has propelled Bega to darling status among small cap stocks.
The company listed in a $250 million float in 2011 and has subsequently used its stock to finalise the purchase of Tatura and now its bid for Warrnambool.
If successful, Bega's unconditional offer of 1.2 Bega shares and $2 cash for each Warrnambool share would create one of Australia's biggest listed food companies.
The combined group would have a market capitalisation of around $650 million and may enter the ASX?200.
Entry into the S&P/ASX?200 index would improve the stock's liquidity and bring share price support from index fund buying.
Commonwealth Bank analyst Jordan Rogers said that combining the two businesses made strategic sense, would increase the company's scale, and boost its long-term takeover appeal from international dairy companies.
"After a volatile first few months of trading as a listed entity, Bega is now finding its feet as a premium stock. We believe a premium is warranted given the company's strategic asset base and leverage to soaring Asian dairy demand," Mr Rogers said in a research note.