Company Valuation Report

Company Valuation Report

EXECUTIVE SUMMARY
Company valuation reports are usually prepared to give the insights of how the shares of the
company have been currently valued in the market as compared to the earnings it has been
provided to investors, cash flow generated on each share along with comparing the company’s
performance with that of their competitors. This report has been prepared with reference to Bega
cheese limited a dairy company based in Australia. In this report, the company analysis has been
done to determine performance of the company as compared to its peers like A2 milk, Saputo
Inc. and Hormel foods. Further, the industry analysis has been done to determine the current
issues facing the company. Through financial analysis, it has been determined that the company
is operating at low profit margins as compared to its peers. Further, through estimation of
intrinsic value, it has been determined that the company’s shares are overvalued and suggests
the sell signals while the technical analysis suggests the shares of the company being
undervalued and giving the buy signals. Also, the relative valuation suggests the buy signals for
the shares of Bega limited and accordingly, overall recommendation has been made for buying
the stocks of Bega cheese limited.

Table of Contents
Company Analysis.......................................................................................................................3
Industry Analysis.........................................................................................................................3
a) At the Macroeconomic Level..................................................................................................5
b) At the Microeconomic Level...................................................................................................5
c) SWOT analysis........................................................................................................................5
d) PESTLE analysis.....................................................................................................................7
Intrinsic Value Estimation...........................................................................................................8
Estimation of extrinsic value of the Bega cheese limited share using the dividend discount
model.........................................................................................................................................10
Estimation of intrinsic value of the company’s shares with the help of free cash flow to equity
model.........................................................................................................................................12
Application of relative valuation techniques.............................................................................13
Evaluation of company’s share price performance over the last five years..............................14
50 day and 200 day moving average line and volume analysis.................................................14
Evaluation of the findings..........................................................................................................15
REFERENCES................................................................................................................................1
PESTEL Analysis of Bega Cheese Limited. 2022. [Online]. Available through: APPENDIX.......1

Company Analysis
Bega cheese is a public company operating in the dairy and food processing industry. It was
founded in 1899 and is now a 123 years old company. It has its headquarters in Bega in New
South Wales in Australia. Paul van Heewaarden is one of the key people of the company sitting
on the position of chief executive officer. It has a subsidiary that goes with the name of Bega
Dairy and Drinks. The company was started by the local farmers in the Bega Valley as Bega Co
– operative creamery company.
Bega Cheese in its sustainability reports have been consistently outlining their ethical, social as
well as governance responsibilities. These key responsibilities involve issues including code of
conduct of the company and its managerial personnel, statement of the corporate governance of
the company including its official memorandum, statement of modern slavery, etc. Through
these statements the company acknowledges its responsibility and accountability towards
employees, shareholders and the stakeholders.
Industry Analysis
Evaluation of Relative Financial Performance:
The major competitors of Bega Cheese in the market included in this report are Saputo Inc., A2
Milk company and Hormel Foods. These competitors have been selected as they are operating at
the same level as Bega Cheese and are also global companies which have their operations in
Australia. Also, the processes and operations of all the companies are nearly similar and belong
to the similar industries therefore, such competitors have been selected.
The five financial ratios worked out of the above 4 companies of the past 5 years are:
Gross profit margin – It shows the margin of gross profit of the company which comes after
deducting cost of sales from the revenue. Thus, it is an essential measure of the profitability of
the company. Higher the better.
Debtor collection period – This ratio shows the average number of days the company takes to
collect its debt from the debtors and customers. Lower the better.
Current ratio – It shows the ability of the organisation to be able to meet the financial and
operational obligations to the creditors.
Quick ratio – It measures the ability of the company to meet its short term obligations but
without the need to dispose its stock or even get the additional funding.

Earnings per share – It shows the earnings of the company being distributed over each ordinary
share i.e., earnings received by each share of the company.
On the analysis of the ratio analysis done of Bega Cheese with its competitors in case of 5
primary financial ratios, it can be observed that gross profit margin of A2 Milk Company is the
highest while of the Bega Cheese is the lowest of all the five financial years i.e., 2017 to 2021.
The debtor collection period calculated of all the 4 companies i.e., Bega Cheese with its 3 peers
of the year 2017, collection period of Bega Cheese is highest with 50.15 or 50 days. Same is the
case in the year 2018 and 2019 which improved to 17 days in 2020 which again increased in the
year 2021. Current ratio of Bega Cheese was highest in the year 2017 i.e., 3.07. After that, in all
the succeeding years, this ratio was consistently low and less than 2 which is the optimum
current ratio. Comparing the peers, A2 Milk Company has performed the best of all with higher
current ratio.
Over the past 5 years, the gross profit margin of the company has increased due to the increase in
sales revenue every year of the company. But, the debtor collection days has been consistently
higher of the company which is a bad indicator. Only in the year 2020 it came down which again
increased significantly. The current ratio of the company was highest in 2017 after which it kept
on falling with the lowest in 2021 reason for which is the drastic increase in the current liabilities
in the year 2021 as compared to the year 2020. For the same reason of drastic increase in the
current liabilities, quick ratio also decreased in the subsequent years from 2017. In the case of
EPS also the 2017 marked the year with highest EPS and then it was at the lower levels due to
lesser profits and increase in the number of ordinary shares.
DuPont Method Estimate:
DuPont ROEs
2017 2018 2019 2020 2021
Bega Cheese limited
0.308
2
0.047
8
0.016
2
0.026
1
0.020
5
A2 Milk
0.484
0
0.490
9
0.428
3
0.401
5
0.072
7
Saputo Inc.
0.174
2
0.186
9
0.147
8
0.097
3
0.096
2
Hormel Foods
0.180
4
0.192
1
0.169
8
0.147
0
0.135
6
ROEs that has been calculated from the 3 – step procedure.

Through the above analysis, it can seen that the ROEs of Bega cheese limited has decline
currently as compared to previous years. However, for its competitors like A2 milk it has
increased and higher than Bega limited. Further, the ROE of Saputo and Hormel foods have
decline from the past but is much higher than Bega cheese limited. Lower ROE means the
profitability of the company is poor than the peers and also the company is not efficient in
generating those profits. Du Pont analysis suggests the reason for lower ROE of Bega cheese
limited as the poor net profit margins of the company as compared to its peers. The net profit
margins of Bega cheese limited is just 1% while that of A2 Milk, Saputo Inc. and Hormel foods,
the net profit margins have been identified as 7%, 4.3% and 8% respectively (Yilmaz, 2022).
Analysing the company's current issues
a) At the Macroeconomic Level
There are various kinds of the external factors which tend to influence the functioning of
the organization in turn accomplishing the objectives of company does not become possible in
specific organization. In order to become successful and effective it is important for the
organizations operating in this industry to pay attention on adopting certain courses of the actions
so that higher profitability and stability can be derived. This involves generic background,
climate, diseases, year and season of calving, availability of resources, demands of products,
increased costs, lack of access and reduction in water allocation. Risk management is the another
issue in this industry. Reusing waste and other political, environmental and technological other
types of the factors can influence such form of aspects. On the basis of this, it can be identified
that at the macro level the particular industry can face such form of the issues.
b) At the Microeconomic Level
In order to become successful in this specific industry the organizations require focusing
on certain factors so that accomplishing the objectives of higher profitability & stability can be
influenced. This involves the aspects like operations type, size of the organization, forms of the
objectives, competitors overcoming capacity, etc. For the purpose of becoming successful and
effective it is important for the company to focus on developing the courses of actions that can
benefit in having higher profitability and stability. This includes particular pricing strategy,
relationship with distributors, etc. On the basis of this, it can be identified that there are various
form of the internal factors which influences the processing of particular dairy industry.