My Musings

December 31, 2014
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BRG.AX ONE TO WATCH FOR 2015

Embracing our new sub $1b market cap I thought I’d write a quick note on one company that has been on my watchlist since the start of 2014: Breville Group (ASX:BRG).

Breville manufacture small domestic appliances (like espresso machine, juicers, and jaffles makers) and sell them globally. Sales are basically split 50% Aus, 40% US, and 10% rest of the world.

Screen Shot 2014-12-31 at 10.19.11 am

Master retailer, Solomon Lew owns 30% of the business, but the market is divided as to whether he will look to take over or cash in, in the near future.

This one has been trending lower since march (52 week high 8.75) and was punished further at the mid-year following disappointing earnings growth despite an 11% increase to revenue. This was attributed (at least in part) to margin reduction from stronger USD.

In 2013/14 they transitioned from a North American distribution agreement with Keurig, to selling good directly under the Breville brand. While the loss of this distribution agreement was expected to impacted earnings in the US the market was also unimpressed at the rate the company has been able to grow revenues selling products directly. Part of the problem here has been the consumer transition from juicers to blenders so the market will be looking for a strong improve in sales of these in the next results.

Adding to uncertainty , CEO Jack Lord was dropped mid-year and is yet to be replaced. Expect an announcement in Q1 2015 on this.

Pleasingly, interest in their flagship brands, such Breville’s fully automatic espresso machine ‘The Oracle’ are all tracking well:

Screen Shot 2014-12-31 at 11.16.38 am

In 2014 Breville acquired distribution rights for the PolyScience range of ‘scientific laboratory equipment. This covers a lot of very cool sous-vide equipment across both commercial and consumer markets. Currently considered the playground of professionals or MasterChef wannabes, bringing sous-vide to the masses could be a huge opportunity for Breville in 2015.

Screen Shot 2014-12-31 at 12.08.02 pm

Technical analysis

Looking at the weekly chart BRG it’s clear the past 12 months have been pretty miserable for holders with the share price firmly stuck in a downtrending range.

Screen Shot 2014-12-31 at 11.21.49 am

The recent dailys show a slightly more optimistic picture with a base appearing to form (albeit on low volumes) around 6.06.

Screen Shot 2014-12-31 at 11.26.04 amCase for bulls

  • Pain from the loss of Keurig distribution agreement has already been felt
  • Rapidly dropping AUD and strengthening economic conditions in the US should support EBIT margins for the North American business (those yanks love their blenders!)
  • Opportunity to be first to market with a truly consumer-focus sous-vide range of products.

Case for bears

  • Weakening Australian economy still accounts for 50% of revenue
  • Weakening AUD increase COGS
  • Transition period for new management.

Price at time of post: $6.40 (30/12/2014) 

The information on this site is of a general nature only. It does not take your specific needs or circumstances into consideration. You should look at your own personal situation and requirements before making any financial decisions.

 


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