It invented the jaffle maker, but can Breville keep running hot?

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If you’ve ever made a toasted sandwich, experimented with an air fryer or set up a barista station in your home office, there’s a decent chance you’ve come into contact with ASX-listed Breville Group.

The Australian-founded kitchen goods business has come a long way since being founded by Bill O’Brien and Harry Norville (whose names merge to form “Breville”) in the 1930s. These days, it’s one of Australia’s biggest consumer goods exports, a $3 billion brand that sells its products into retail giants like Walmart and John Lewis.

Jim Clayton is the chief executive of Breville Group. Credit: Dominic Lorrimer.

Breville has delivered strong results over the past few years as consumers directed their spending towards home goods and getting the best technology available for their kitchens. The business has also seen volatile conditions recently, however, with inflation hitting all elements of the supply chain, while the war in Ukraine changed trading conditions across Europe.

Stock watchers are weighing these short-term headwinds against the company’s longer-term growth trajectory.

Industry: Consumer goods.

Main products: Coffee machines, air fryers and juicers.

Key figures: Chief executive officer Jim Clayton, non-executive chairman Timothy Antonie.

How it started: In 1932, Australian entrepreneurs O’Brien and Norville merged their names together to launch Breville, a business that started off selling radios. Over the next several decades the company branched out into other consumer electronics goods, and in 1974 invented the jaffle maker, which quickly sold hundreds of thousands of units.

How it’s going: Since listing on the ASX in 1999, the business has delivered returns of more than 2200 per cent and is ahead by 83 per cent over the past five years. The growth in share price has been a major win for Solomon Lew’s Premier Investments, which owns a stake of around 25 per cent, worth $809 million at the start of this year.

The bull case: The majority of analysts watching Breville say the company has three key things going for it: it sells into a wide range of overseas markets, it continues to invest in innovating new products, and it has a strong brand position that is well-marketed.

Breville’s coffee machines are very popular.

Despite sales in Europe being more volatile over the past year, largely due to the war in Ukraine and retailers taking a more conservative approach to how much Breville stock they are holding, those watching the stock say there’s plenty of opportunity for fresh growth.

“Given the early success of the South Korean launch (June 2022), we expect Asia, specifically China, to form the next stage in growth globally for Breville,” Wilsons analyst John Hynd said last month.

UBS analysts say the company has been able to meet its profit and sales guidance even when product sales are softer.

“Over the medium term, we are attracted to Breville’s exposure to the structurally growing coffee category, opportunity to build scale offshore, and rollout of new products,” the UBS team said in a note to clients.

The bear case: Those that are more cautious on the stock have the consumer spending slowdown front of mind.

Australian Bureau of Statistics data for March shows that while most categories of household spending are continuing to grow, spending on furnishings and household equipment is declining.

The RBC Capital Markets team say that even though Breville is a premium brand, there could be challenging conditions ahead for overall spending.

“The upcoming challenging macro environment causes us to be cautious despite Breville’s strong historical track record,” its analysts said when initiating coverage on the stock in March.

RBC’s price target of $21 per share is just above Breville’s share price of $20.70 on Tuesday morning.

The investment bank pointed out that Breville trades at a premium to its peers, thanks largely to its track record of growing earnings and its strong profitability.

“However, at present, these factors look fully priced in which supports our Sector Perform rating,” RBC analysts said in a note earlier this year.

  • Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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