Despite Headwinds, Food Suppliers Inghams and Bega Look Good Value

Near-term profitability is under pressure at Inghams and Bega. Input costs, notably labour, chicken feed, and milk, are elevated, and the firms have been unable to pass through increased costs in their entirety. Bega and Inghams are both highly reliant on supermarket giants Coles and Woolworths. Together the latter account for about two thirds of food retailing in Australia, and command substantial bargaining power over suppliers. We don't think Inghams or Bega have garnered brand equity sufficient to warrant an economic moat. We think the balance of power lies with the supermarkets, keeping a lid on margins.