Maf302: Bega Cheese Limited Assessment Answer

Corporate Finance Assignment Help

This assignment has two parts:

Part 1 (Group Report) is to be completed in a group of 3 students. There is a limit of 4000 words for this part. You must correctly use the Harvard style of referencing in this assessment.

To obtain maximum marks in the assignment, you need to show the relevant steps, reasons for your choices and/or financial models, not just the answer. Be succinct in your writing. It is the quality of the content that counts, not the number of words.

Part 2 (Individual Presentation) is to be completed individually by each group member, who has to perform an individual presentation about one of three topics given in the assignment. You also need to submit (i) a summary of the topic you chose and (ii) your presentation slides.

Bega Cheese Limited Background

Dairying started in the Bega Valley in the 1850’s. In those days each farmer produced and sold products, such as cheese and butter from their dairy. After a period of time, local farmers decided to improve their individual production and marketing activities and banded together to establish The Bega Co-operative Creamery Company in 1899. Bega’s original factory was opened in Bega in 1900.

From 2007 to date, Bega acquired the cheese assets of Kraft Foods, purchased the assets and operations of De Cicco Industries, and created a wholly owned subsidiary – Tatura Milk Industries. In August 2011, Bega was listed on the Australia Securities Exchange (ASX). In July 2017, Bega expanded its portfolio beyond dairy to include some of Australia’s most iconic and loved food brands and products, including Vegemite, ZoOSh, and Bega Peanut Butter.

Today, with sites from Bega to Melbourne and Northern Victoria, Bega now employs approximately 2,000 people. The company has evolved from its modest and localised co-operative heritage in Bega into a significant and innovative player in the Australian and international dairy industry. Bega’s original site at Lagoon Street still operates today, producing cheddar and mozzarella cheese and whey powders. There are now approximately 500 farms supplying the Bega group. The Company’s production of approximately 236,000 tonnes of dairy products equates to a sales turnover in excess of $1.2 billion per annum.

Your task Part 1: Group Report

You have worked at an investment and consulting firm in Australia for almost a year. Your team leader, John was impressed by your report about Bega’s corporate governance and corporate social responsibility. Now, John wants you to team up with two other colleagues to write a detailed report about Bega’s capital structure and payout policy, recent financing and acquisition activities, cost of capital, and value per share. You also need to present your results to your firm’s board of directors. Your report should address the following points:

1. Bega’s capital structure and payout policy:

(a) Describe Bega’s capital structure and compare it with the capital structure of other dairy firms (e.g. Bellamy and A2 Milk) and major banks in Australia. Use the theories of capital structure to explain the differences in capital structure. (b) Briefly describe Bega’s current payout ratio and dividend per share (DPS) in the past four years.

What factors affect Bega’s payout ratio?

2. Bega’s financing activities:

(a) Bega was listed on the Australian Securities Exchange (ASX) in August 2011.

1. Was the price per share fairly set in the initial public offering (IPO)? Calculate the IPO

underpricing/overpricing. ii. Briefly explain the reasons behind the IPO underpricing/overpricing. (b) Bega’s raised new capital in June 2017.

1. Provide a brief summary of the capital raising (e.g. the size, target investors, purpose, etc). ii. What was the share price reaction to the capital raising? Was the capital raising successful? (9 marks)

2. Bega’s recent acquisition:

Bega acquired Mondelez International’s Australian and New Zealand grocery businesses in 2017. (a) What were the economic or strategic reasons behind the acquisition? Was it a good deal? (b) How was the acquisition financed? Who were the target investors? (c) Describe investors’ reaction to the acquisition deal as reflected by Bega’s share price: from the period before the announcement of the acquisition to the closure of the acquisition. Briefly discuss the reasons behind the stock price movements within that period.

4. Bega’s weighted average cost of capital (WACC):

(a) Calculate Bega’s WACC. Use the Capital Asset Pricing Model (CAPM) to find the cost of equity. Show the Excel spreadsheet and state all the reasons and/or assumptions you made in your calculations. (b) Compare your estimates of Bega’s Beta and WACC with the estimates by other financial analysts. (6 marks)

Deakin's Bachelor of Commerce and MBA are internationally EPAS accredited. Deakin Business School is accredited by AACSB.

5. Valuation of Bega:

(a) Calculate the intrinsic value of Bega using the discounted cash-flow (DCF) model. State all the

reasons and/or assumptions you made in your calculations. You need to:

1. determine the period that Bega will experience high growth and justify it, ii. prepare a pro forma financial statement to forecast the free cash flows (FCFs) during the 

   high growth period, iii. forecast the horizon/terminal value, iv. determine and justify the short-term and long-term growth rates.

1. provide an estimate value per share for Bega. (b) Compare your valuation with the valuations by other analysts and Bega’s current share price. Is 

   Bega fairly priced, overpriced or underpriced based on your calculation? (c) Show some sensitivity analysis. What are the important economic factors that may affect your 

   estimations?

John is well-trained in finance and prefers reader-friendly financial reports written in a professionally manner. He expects your analysis to be rich in information and well structured. It should contain main points with the relevant descriptions and evidence from reliable sources or references. He also appreciates tables and/or graphs that help to illustrate the main points.

Part 2: Individual Presentation

The directors at your firm are all very busy and work on a tight schedule. They prefer to (i) watch short presentations that highlight important points and (ii) read brief summaries of the major findings from your report. You need to effectively convey the important information within a short time.

1. Each of your team members will be required to make a brief presentation of 3 minutes (maximum) about one of the following topics from Part 1 (Group Report):

2. Member 1: Bega’s capital structure and payout policy 2. Member 2: Bega’s financing activities 3. Member 3: Bega’s recent acquisition

The time limit will be strictly enforced, so you must stop at the 3-minute mark. You are strongly encouraged to rehearse your presentation to ensure that it does not go over time.

1. You need to submit:

2. a summary  of the topic you chose (either 1., 2. or 3.) and ii. your presentation slides

The summary should provide a brief background of the topic and the major findings.