Breville Group Limited

Decent Performance in 1HFY19:Breville Group Limited (ASX: BRG) is engaged in the design and development of innovative and world class small electrical kitchen appliances and the effective marketing of these products across multiple geographies. For the half year ended 31 December 2018, the company generated revenue amounting to $440.4 million, up 15.4% on prior corresponding period revenue of $381.8 million. EBITDA for the period stood at $70.5 million, up 14.6% on 1HFY18 EBITDA of $61.5 million. During the period, NPAT amounted to $43.5 million, reporting an increase of 19.7% on prior corresponding period, impacted by a one-off reduction in the Group’s US deferred tax asset in the pcp.
Dividend per shares also increased in comparison to pcp at 18.5 cents per share, up 12.1%. Basic earnings per share stood at 33.5 cents per share as compared to 27.9 cents per share in the prior corresponding period. The group’s cash position was in line with the previous year with an improved ROEof 22.5%.

During the period, total investment in the net working capital increased by $18.2 million as compared to pcp, with $18 million represented by investments for entry into the German and Austrian market.


Group Results Summary (Source: Company Reports)

Segment Results: During the period, the company reported double-digit growth in both global product and distribution segments.

Revenue for the global product segment grew by 14.8% to $356.1 million as compared to $310.1 million in pcp.Growth in the segment was achieved by double digit growth in key markets of the USA, Australia, and the UK along with geographic expansion in Germany and Austria.

Revenue for the distribution segment increased to $84.3 million in the first half, up 17.6% on pcp revenue of $71.7 million. EBIT for the product segment was reported at $52.1 million, up 11.3% on pcp and that for the distribution segment was reported at $10.2 million, up 22.1% on pcp.


Segment Results (Source: Company Reports)

Outlook: On the outlook front, the company expects stronger global product segment growth in the second half of the yearon the back of new product development and further geographic expansion.
The company expects the inventory to be higher than the previous year for continued European expansion and current operational plans to bring forward some holiday inventory for FY20. The company expects EBIT growth rate for the full year to be higher than the market’s current consensus forecast of ~11%.

Other Updates: The company recently updated a change in the substantial shareholding of Matthews International Capital Management, LLC wherein the voting power of the shareholder was decreased from 8.17% to 7.16%, effective from July 02, 2019. Recently, the company appointed Craig Robinson as an additional Company Secretary, effective 26 June 2019.

Stock Recommendation: The stock of the company generated returns of 48.47% over a period of 6 months. YTD returns from the stock stand at 53.88%. The first half of the financial year was characterised by solid revenue growth accompanied by double digit EBIT growth. The company witnessed growth while successfully executing on its acceleration program and increasing investment in product development. The period also saw successful geographical expansion with entry into Germany and Austria. We are yet to see how entry into new markets and product development program will impact the performance of the company. Currently, the stock is trading slightly towards its 52-week high level of $19.55 with higher PE multiple of 31.270x. Hence, considering the above-stated factors and current trading level, we put our wait and watch stance on the stock at a current market price of $17.010, up 5.981% on 09 July 2019.  

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