# BRG - Breville Group



## System (7 June 2011)

Breville Group Limited (BRG) is a leading provider of electrical consumer products. 

http://www.brevillegroup.com.au


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## Out Too Soon (12 December 2012)

This keeps coming up in my scans, not really exciting enough to BUY at present but it does get BUY recs occasionally from some of the "pay sites".


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## Country Lad (12 December 2012)

Out Too Soon said:


> .......... not really exciting enough to BUY




Leave my boring little stocks alone or they may be insulted and start dropping.    There have been a few of these around for a while, just steadily increasing, maybe resting for a while & up they go again.  A couple of the others I have are KSC and MXI (I mentioned this in its own thread and btw looks like it could break out again).

Cheers
Country Lad


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## RottenValue (12 December 2012)

Have been patiently waiting for this one to drop into my buy zone since August - I fear I need another insignificant European country to default or have a revolution for that occur.


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## Country Lad (12 December 2012)

RottenValue said:


> Have been patiently waiting for this one to drop into my buy zone since August




Setting a lower buy price for a rising stock seems to me to be an odd thing to do.   Had you bought it in Aug you would be up about 27% + another 2.3% in dividend.

That's a bit like the 60 year old guy sitting in the corner of the real estate office who has been there for 30 years waiting for the real estate market to fall.

If it is worth buying then it is worth buying, not waiting for some hypothetical bargain which will never arrive.  The other issue with waiting for it to drop to your buy price means you are buying a falling stock.

Cheers
Country Lad


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## RottenValue (12 December 2012)

Each to their own - many different ways to make money in the stock market.

I buy good companies when I think they are underpriced - and that means that I miss a few that I know are good but just keep getting more overpriced.  However, more than happy only to buy when the odds of a good return are in my favour, a 2012 portfolio return of 25.1% is a enough reward for my patience.


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## ROE (13 December 2012)

this is the one that got away from me....
I am a coffee drinker, I got their top of the line expresso machine the BES900
I was so impress with the machine and start researching the stock.

while I take my time researching, the stock run pretty hard from $2.80 and march forward
I gave up the chase ... spent my money on JIN and CDA instead


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## RottenValue (13 December 2012)

Feel the same way with BRG but sadly we cant back every winner.

Interestingly, my capital also found its way into JIN, along with a more speculative COO and the ex-falling knife FGE .


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## McLovin (28 December 2012)

Up 9% today...Decent volume too, especially considering the time of year! 

BRG has paid doubly for me. I bought BRG, and it led me to PMV.


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## Out Too Soon (10 January 2013)

Country Lad said:


> Leave my boring little stocks alone or they may be insulted and start dropping.    There have been a few of these around for a while, just steadily increasing, maybe resting for a while & up they go again.  A couple of the others I have are KSC and MXI (I mentioned this in its own thread and btw looks like it could break out again).
> 
> Cheers
> Country Lad




 Sorry Country Lad, finally had to have a bite of this cherry, hope I'm not a jinx on it 




Lots of buying pressure around 6.30-6.32, ie I think the fall has stopped & it will rise again.


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## Out Too Soon (10 January 2013)

Damn! Jinxed myself more than anything, tight stop loss triggered same day


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## RandR (11 January 2013)

from 2009 onwards the financial performance and stock of this business has well and truly flourished, indeed it appears they are swimming in cash atm. What happened? Anybody familiar with this business for more then the last couple of years? In the decade leading up to 2009 it appears the business was quite unexceptional.


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## tinhat (11 January 2013)

The only thing I know about them is that GUD (Sunbeam brand) attempted to take them over a couple of years back and the ACCC disallowed it. GUD had built up a substantial shareholding which they sold off last year I believe. Brevillle came on my radar last year ago but has been one of those companies that has always seemed fully priced - yet the price keeps going up. In hindsight would have been a good buy this time past year.


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## VSntchr (11 January 2013)

Good company, solid earnings history since 2009 and good growth trajectory...however I can't bring myself to pay $6+ for this...
Its still on my watchlist but not a buy for me...


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## Klogg (11 January 2013)

VSntchr said:


> Good company, solid earnings history since 2009 and good growth trajectory...however I can't bring myself to pay $6+ for this...
> Its still on my watchlist but not a buy for me...




This was one of my first buys early this year (I started in Jan) and turned out to be great.

My reason for buying was to do with an onerous lease that is due to expire about now that was taking a substantial amount off the bottom line... 
Ofcourse, it took off like a rocket when their profit went nuts for good business in North America so this one is just luck for me.

Sitting on a 103% return + dividends atm.


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## Vader (11 January 2013)

Roger Montgomery is also starting to pump BRG on his blog... posted an interesting bit of news today that they announced earlier in the week that BRG have signed a contract with Nespresso to sell official Nespresso branded coffee machines that should be in stores about the middle of this year, thereby cutting in on the monopoly that DeLonghi have had up until now - not sure why an announcement about this wasn't made to the ASX, that should end up being a nice little bit of growth to the earnings.

...anyway, I jumped in this morning and bought some for $6.25 on open... got plenty of breville appliances around the house and they've always been a pretty decent brand.


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## McLovin (11 January 2013)

Anyone selling appliances will love that. From what I understand, DeLonghi doesn't have the best reputation for being easy to deal with and apparently really screws everyone on price.


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## RandR (11 January 2013)

I want to do a bit more research into the history of this business in the first half of lost decade. especially 2006-7 before im really going to feel comfortable with it. Need to get to the bottom of what caused the dire performance last decade and the turnaround this decade.

Interesting comments about the Nescafe tie up, I noticed Nescafe started opening their own retail stores in Australia.

I havnt spent too much time looking, but does anyone know if they have any sort of hedge against the US dollar earnings for the North American sales? Does the high aus dollar of the last few years explain the growth in sales from NA. Could add an interesting dynamic.


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## RandR (5 February 2013)

RandR said:


> from 2009 onwards the financial performance and stock of this business has well and truly flourished, indeed it appears they are swimming in cash atm. What happened? Anybody familiar with this business for more then the last couple of years? In the decade leading up to 2009 it appears the business was quite unexceptional.




It simply appears in 2009 they divested and sold off sectors of the business that were loss making and struggling. This gives me a quite considerable amount of respect for current management in their bravery to splice the business and their handling of the rivers of cash that have flowed since resetting the business strategy in 09. The more i dig the more i like. Its becoming quite difficult to find much that will put me off BRG.


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## RottenValue (5 February 2013)

RandR said:


> Its becoming quite difficult to find much that will put me off BRG.




Maybe the price?


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## RandR (6 February 2013)

RottenValue said:


> Maybe the price?




Granted its not a bargain and not cheap atm, its not trading at a ridiculous multiple of EBIT.

I dont think its overpriced excessively at all tbh, without even considering the significant outperformance in growth its been achieving that im not valueing into the future.


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## McLovin (20 February 2013)

All seems a bit overdone, if you ask me.

International business is still growing very well 32% revenue growth in North America ex Keurig, 10% revenue growth for the international distribution business. Australia growing at 5%. Not a bad result given we are somewhere in the bottom part of the cycle.

Even if the Keurig business is lost this doesn't look expensive (not cheap either!).


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## tinhat (20 February 2013)

McLovin said:


> All seems a bit overdone, if you ask me.
> 
> International business is still growing very well 32% revenue growth in North America ex Keurig, 10% revenue growth for the international distribution business. Australia growing at 5%. Not a bad result given we are somewhere in the bottom part of the cycle.
> 
> Even if the Keurig business is lost this doesn't look expensive (not cheap either!).




The guidance given is for FY13 EBITA growth of 4-8%. Looking at FY12 EPS, that would translate to a FY13 EPS of 37-38c. According to Reuters Thompson, the analyst consensus forecast was for FY13 EPS of 40c.

As of yesterday's close BRG was trading at a PE of 20.47 so I think the share price overshot the mark perhaps given that growth guidance.

Additionally, the dividend announced is only 68% franked. If I did my figures right that works out to 18.08c grossed up, whereas the HY12 dividend was 17.86c grossed up. Maybe the market was hoping for more than a 0.24c per share increase in the grossed up dividend?

If it gets towards $5 I might be interested.


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## McLovin (20 February 2013)

Fair points tinny but the way I see it BRG has ramped up its ad spend (they spent more in the last half than they did all of last year) and that is what is driving the lower npat growth rate. You got to spend money to make money etc. It's also been good to see that they have expanded their GPM by almost a full percentage point, so that gives me some comfort that they're not discounting to drive revenue growth. That is even more impressive when you view the expanding GPM in the context of the overall sales growth and it's allowing them to position themselves into new markets (UK later this year). The way I see this result is that there is some consolidation occurring inside the business as they seek out new growth. Especially if the Keurig business disappears. Unlike most businesses though these guys are using their own cashflow to fund that growth rather than debt or equity. I guess time will tell how correct my thesis is.

ETA: Just further on the ad spend, BRG is essentially a designer and marketeer. If they were a manufacturer then the money being spent on advertising would instead be going into new PP&E being capitalised and the NPAT number would look much better. Unfortunately, investment in your own brand is expensed. Just another accounting quirk.


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## DocK (20 February 2013)

> The group recently appointed British celebrity chef Heston Blumenthal as an ambassador and plans to launch a new Blumenthal-endorsed appliance brand later this year.
> 
> It also plans to roll out a range of co-branded Nespresso coffee machines in Australia and New Zealand, where the portioned coffee market was now "in excess of $100 million a year and still growing".



http://news.brisbanetimes.com.au/breaking-news-business/breville-shares-dive-on-canada-warning-20130220-2er68.html

I sure hope the reaction to the possible loss of the Keurig revenue is overdone as I had an order sitting in the market at $6 so got filled on the open today.  The UK will be a huge market for them, so presumably even a small market share will result in a good boost to profits.  The nespresso partnership is also promising - I'll probably be adding another Breville appliance to the several I already own.  As an old cook I find their products innovative and good quality products at a reasonable price.  Regular emails are a good marketing tool.  Unless your average home cook in the UK is more spoilt for choice than we are here, I think their planned expansion should do well, particularly with Heston Blumenthal as the figurehead.   They have a great record and no debt, so I'm happy enough to be in at $5.95.


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## Klogg (20 February 2013)

DocK said:


> http://news.brisbanetimes.com.au/breaking-news-business/breville-shares-dive-on-canada-warning-20130220-2er68.html
> 
> I sure hope the reaction to the possible loss of the Keurig revenue is overdone.




It's 19.5mil of revenue (read from today's investor preso) - what the associated costs are, I don't know...


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## McLovin (20 February 2013)

Klogg said:


> It's 19.5mil of revenue (read from today's investor preso) - what the associated costs are, I don't know...




The margin on that $19.5m is about ~50%, hence it's importance to the bottomline.


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## skc (20 February 2013)

It wouldn't surprise me if BRG does an ORL over the next few months.

It's lost less of its revenue / earnings while having much better growth prospects.


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## VSntchr (7 May 2013)

skc said:


> It wouldn't surprise me if BRG does an ORL over the next few months.
> 
> It's lost less of its revenue / earnings while having much better growth prospects.









Spot on SKC.


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## Ves (20 August 2013)

This company is turning into quite a reliable wealth-builder - as usual the trick is that it's a pretty boring company that won't excite most.

Whilst it doesn't yet show in the headline figures on the P & L quite yet - it looks like to me that they are really starting to ramp up their investments in their international income streams  (also see falling AUD).    The amazing part about this result is that it beat analyst forecasts quite handsomely and still managed to include a little bit of the old "short-term pain for long-term gain" hidden amongst the figures.  The working capital investment (especially inventory figures) and advertising expenses are what I am looking at. There are also a few one-off costs in the figures that the company breezed over.

How many consumer discretionary companies on the ASX can claim they are really ramping up their investment in brand awareness in this climate without impacting their short-term profitability? ROIC and profit margins barely missed a beat, despite this.


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## Ves (20 February 2014)

Looks like they're still ploughing lots of money into brand awareness and innovation (advertising now 5.1% of revenue). I believe that this will be really good long term - a business with a strong and profitable franchise flexing its muscles.

Top line growth still phenomenal.   

The accounting figures / profitability doesn't look quite reflect the underlying growth in this business yet,  but it will when critical mass is achieved in their overseas operations.

For instance - they lost $12m of almost 100% margin commission income from the Keurig agreement.   It has been replaced in a single half year.  

Big investment in working capital will be converted to cash flow in future reports.

Still looks pretty good to me.


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## VSntchr (20 February 2014)

Agree with the above Ves.

One thing I love about this company is the effort they put into reports. They really do make it alot easier to understand and analyse. 
Not that their business is overly complicated, but I have seen many simple businesses with very hard to decipher reports and quoted metrics.


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## piggybank (21 February 2014)

Here is the report Ves & VSntchr were referring to:- http://stocknessmonster.com/news-item?S=BRG&E=ASX&N=783328

Given that the report was more positive (than negative), the stock has shot up the past couple of days by $1.77c (or 21.18%) in increased volume. Btw, the MA is the 250D EMA

​


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## VSntchr (3 June 2014)

Dipping below $8 today. Starting to look at my portfolio closely and wondering if it deserves a place.

Would have to do some shuffling so hopefully the decline continues for at least a little longer.
Hmmm.


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## VSntchr (21 August 2014)

Well it was the biggest decliner in the mid end of the market today after announcing with the annual result that the CEO is packing his bags immediately.
There's not much detail in the announcement as to why he wouldn't stick around until a full-time replacement has been found - so read into that what you will. It could be nothing, as the company has a competent operator in Mr Cohen who took the helm for 3 months during the previous CEO transition period....


As for the result, it was more heavy "investment" in advertising, with good cost control in the other areas.
R&D expenditure is still strong which should drive product releases over the future periods.
I was expecting some subdued sales growth with this result given the troubles that GUD reported recently however I don't feel the result was too bad at all. 
The operating margins in the international divisions have dropped, but this was expected in the USA with the loss of Keurig commission income. Gross profit margins dropped slightly (36.6% v 37.5%), hardly enough to warrant concern that management is discounting to push sales.

The severe US weather that everyone kept referring to at the start of the year has not really been talked about by management, instead they have focused their attention on the trend away from juicing towards blending. 

Their new "The Boss" blender actually does look like a "boss" product....I wonder how it compares to the heavyweights such as "Vitamix" and "Blendtec"...perhaps some scuttlebutt would help here.

Management also made mention of market share gains which is a good sign that the brand investment is working.

Will be interested to see if any more light is shed on the CEO leaving.


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## skc (21 August 2014)

VSntchr said:


> Will be interested to see if any more light is shed on the CEO leaving.




Yes very surprised that nothing was mentioned. That usually means he was fired but I can't quite believe that given how well he's guided the company during his helm. This is probably his first slip up. The AFR will probably have some behind the scene story after the dust settles.


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## McLovin (21 August 2014)

Well BRG was pretty much priced for perfection, so the fall isn't that surprising. This wasn't a bad result -- that they lost all that Keurig commission and EBIT was still pretty much flat says something about the tailwind these guys have. Having said that, I'm a little uncomfortable on blaming purely weather and buyer restocking patterns on the very weak sales performance in NA in 2H.

I still think these guys are in the process of building a world class appliance business. They've moved up the value chain and in the countries they've expanded into over the last 8 or so years they've marketed themselves as a premium brand; they've increased their average unit sell price by 50% since 2006.

On the topic of the CEO, that seems a little concerning, especially as he was such a driving force behind the brand transformation. I agree with skc, it seems like he was fired.

I keep holding BRG, but it's not cheap enough for me to be adding.


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## ROE (21 August 2014)

still not cheap enough for me, at this price it got no margin of safety for me.

still price for grow even with price decline, the CEO exit is concerning

has he done something bad that has not shown up material wise?

I got their top of the line stuff, good product but it doesn't last very long after the 2 years warranty expire so I am hesitant to buy from them again, I am going for Italian or German made stuff now

it maybe just applied to me or a one off thing only but if it is  more wide spread then I cant see them get many repeat sale and that will be concerning for the business in the long run.

If you going to build a premium brand you sure as hell that it will last and people upgrade because they want to not because it break down ..... Learn from Apple how to make premium products, most of their gears last donkey years but people want to upgrade rather than it breaking down... and that how you get people to keep coming back for your products..

I still got the original iPhone and working and I am now on iPhone 5S


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## McLovin (21 August 2014)

ROE said:


> still not cheap enough for me, at this price it got no margin of safety for me.
> 
> still price for grow even with price decline, the CEO exit is concerning
> 
> ...




I know guys who run a electrical/whitegoods retailer. They turn over ~$350m/year. When I first got into Breville I asked them about quality. They said it's quality product that is generally pretty well built. 

Personally, I wouldn't buy anything electrical that's made in Italy. They're absolutely hopeless at electrics, doesn't matter if it's a car or a cheese grater. Having said that, unless you're going for the very top of the market, which Breville isn't targeting, it's all made in China these days anyway. The manufacturer making the BRG stuff is also probably making DeLonghi/Bosch/Cuisinart etc etc.


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## skc (22 August 2014)

McLovin said:


> Having said that, I'm a little uncomfortable on blaming purely weather and buyer restocking patterns on the very weak sales performance in NA in 2H.




My first on reading that was BS. And if that's the case they should have announced it via a trading update in mid April. Coincidentally the stock started to sell off around that time... Collective market wisedom? Or some hedge fund doing really good industry research?



ROE said:


> If you going to build a premium brand you sure as hell that it will last and people upgrade because they want to not because it break down ..... Learn from Apple how to make premium products, most of their gears last donkey years but people want to upgrade rather than it breaking down... and that how you get people to keep coming back for your products..
> 
> I still got the original iPhone and working and I am now on iPhone 5S




A bit harder with appliances. There are innovation but really on the margin. With an iphone, if I don't upgrade I can't load new apps and get better cameras. With a toaster, my sliced bread is still the same shape and fit into a toaster made in the 70s. My water still boils the same way into the kettle.

We bought for a a friend a fancy Breville kettle which has different temp setting (apparently green tea needs 96.5 degree water! Who'd know the fking difference!). And it stopped working after 2 years. We also bought a Sunbeam toaster and 3 months later, one part of the fancy digital countdown timer stopped working. As far as I am concern nothing is made to last regardless of manufacturer.

I am also of the opinion that there's no such thing as a sustainable competitive advantage in the appliance business. Yes there are companies with fancier designs for a period of time (before everyone else copy and undercut them), but it rarely lasts forever. One company will be seen as a leader for 5 years, and another will overtake it for the next 5. I don't see that branding has that much of a lasting effect, except at the ultra premium range (e.g. dyson for things that blow).


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## ROE (22 August 2014)

skc said:


> A bit harder with appliances. There are innovation but really on the margin. With an iphone, if I don't upgrade I can't load new apps and get better cameras. With a toaster, my sliced bread is still the same shape and fit into a toaster made in the 70s. My water still boils the same way into the kettle.




I know it is a bad comparison to Apple but reliability is important, people won't pay premium when they experience reliability issue, it certainly the case for me ....I found a brand doesn't last I tend not to buy it;

I dont expect it to last forever but long enough for you to satisfied that it build to last 5-10 years is an acceptable time frame.

I certainly accept if I buy cheap and nasty stuff I expect it can blow up any time and have no issue with it 
but for me to pay quality and premium I expect it to last.

another example which I think is more closer to the mark, I had a holden about more than a decade ago when they on fire, first Holden and will be the last I ever own in this lifetime.

it is a good car price is the same as Japanese counterpart, but I have so many little issues that pretty much rule me out from ever buying holden again... I since has 3 Japanese cars and would again buy another Japanese car.

How many aussie owning holden today? not many and I reckon it come down to they build car that won't last and it pay no attention to little details that can be annoying.

it not about them not building the right car, they have all sort of models, small, large, SUV but the public has move on because their stuff don't last.


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## McLovin (22 August 2014)

ROE said:


> How many aussie owning holden today? not many and I reckon it come down to they build car that won't last and it pay no attention to little details that can be annoying.




Holden is the second highest selling make in Australia.


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## Julia (22 August 2014)

McLovin said:


> Holden is the second highest selling make in Australia.



Do you think that's a 'national interest' phenomenon because until recently it has been an Australian icon of manufacturing?



> another example which I think is more closer to the mark, I had a holden about more than a decade ago when they on fire, first Holden and will be the last I ever own in this lifetime.
> 
> it is a good car price is the same as Japanese counterpart, but I have so many little issues that pretty much rule me out from ever buying holden again... I since has 3 Japanese cars and would again buy another Japanese car.



Me also.   I bought an Astra because it was a medium sized wagon and allows for dog to be confined to tail space with cargo barrier instead of having dog hair throughout the car.  Previously had Japanese or European cars.
The Holden cuts corners with crap like flimsy plastic trim at front that just falls off for no apparent reason, and wide mirrors that come off in pieces if they brush by a shrub.   Never again.


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## McLovin (22 August 2014)

Julia said:


> Do you think that's a 'national interest' phenomenon because until recently it has been an Australian icon of manufacturing?




I doubt it. Ford seems to have been pummelled over the last ten or so years.



Julia said:


> Me also.   I bought an Astra because it was a medium sized wagon and allows for dog to be confined to tail space with cargo barrier instead of having dog hair throughout the car.  Previously had Japanese or European cars.
> The Holden cuts corners with crap like flimsy plastic trim at front that just falls off for no apparent reason, and wide mirrors that come off in pieces if they brush by a shrub.   Never again.




The Astra is a European car. It's just an Opel with a Holden badge on it. Depending on where in the world you happen to be an Astra is a Chevy/Vauxhall/Saturn/Holden/Opel. Made in Belgium, I think.


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## Julia (22 August 2014)

OK, now I'm even more disappointed!  All the other European cars I've had were great.  Must admit a different price bracket, however.


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## tinhat (22 August 2014)

McLovin said:


> Personally, I wouldn't buy anything electrical that's made in Italy. They're absolutely hopeless at electrics, doesn't matter if it's a car or a cheese grater.




You own/have owned an electric cheese grater?


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## McLovin (22 August 2014)

tinhat said:


> You own/have owned an electric cheese grater?




My Mum had one. Something like this, which she bought in Italy. Can't remember the brand though.


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## McCoy Pauley (23 August 2014)

Notwithstanding the significant price drop, it's still a fair bit higher than my calculation for fair value, so I'm not purchasing it.

Results seemed to be pretty good to me, but I note that their ROE fell almost 200bps in 12 months while their net debt to equity fell about 100bps in 12 months.

Interestingly, BRG's equity at 31 December 2013 was greater than it was at 30 June 2014, although BRG appeared to pay off some debt in the six months interval.

Anecdotally, a lot of chatter in the break-out room at my employer is about the Thermomix. Everyone seems to desire a Thermomix because it can (apparently) "do it all", although it's quite expensive at a tick under $2,000 apparently.


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## ROE (23 August 2014)

McLovin said:


> Holden is the second highest selling make in Australia.




mostly commonwealth/state/local government purchase 
none of the people I know own a Holden


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## ROE (23 August 2014)

McLovin  said:
			
		

> Personally, I wouldn't buy anything electrical that's made in Italy. They're absolutely hopeless at electrics, doesn't matter if it's a car or a cheese grater.




Have you ever own their espresso machine? the smaller manufacturer of these,  they are awesome like Ferrari of car


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## ROE (23 August 2014)

McCoy Pauley said:


> Anecdotally, a lot of chatter in the break-out room at my employer is about the Thermomix. Everyone seems to desire a Thermomix because it can (apparently) "do it all", although it's quite expensive at a tick under $2,000 apparently.




Expensive and people pay for them, I know people who has them but my wife say she doesnt use enough to justified the purchase, top notch German made stuff and it build to last
that the theme people who buy these stuff they want quality and they want it to last.

American who buy upper end stuff is fairly demanding lot and if you cheat them on reliability they aren't coming back.

I will monitor the American sale, if it ain't picking up they are losing the premium battle before they even gain a foothold..


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## VSntchr (23 August 2014)

It seems that many still think BRG is expensive and above their fair value calculations.

While I agree that it is not cheap, I do not think its expensive at the moment...not much of a margin of safety but not overly expensive in my book.

Of course this is entirely dependant on the individual assumptions that one chooses and the rate of success that he/she chooses to ascribe to to the newly formed international operations.

Some other things that influence the BRG valuation is the $70m cash balance, the treatment of R&D - which isn't a big factor as R&D spend is only ~$8m, and the treatment of operating leases...which have an off-balance sheet value of over $25m, which if capitalised effectively double the debt outstanding.

Another factor that I find interesting to contemplate is the level of reinvestment that BRG will have to make over the coming years to sustain revenue growing at double digit rates. As previously spoken about with BRG, they do alot of their investment in the brand via the PnL through advertising and marketing. Looking at depreciation and amortisation to get a rough feel for stay-in-business-capex and then comparing this with actual capex spend since 2009 it can be confirmed that this seems to be the case. The capex is figure was actually running a little lower than D&A for a few years before ticking up a bit in the last 2 FY periods. Usually, I would expect a company growing at such rates would have capex much higher than D&A.
Thinking optimistically, if capex can remain close to D&A then the reinvestment required through this extended growth phase will not hamper the ability of the company to generate strong FCF. Watching the operating margins would then be equally important to see how much the company is investing in the brand and if the payoffs are continuing with increasing sales.


As a side note: It will be interesting too see if this trend of increasing capital expenditure continues, and perhaps shows a trend of management taking some expenses away from the PnL and onto the balance sheet (thanks McLovin for drawing my attention to this in the PVFCF thread).

Just some ramblings as I try to get a fuller understanding of the company and the accounts...


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## ROE (23 August 2014)

Julia said:


> OK, now I'm even more disappointed!  All the other European cars I've had were great.  Must admit a different price bracket, however.




I think Euro car the reliability are the upper end model and the lower end the Japanese car seem
to rule the street though toyota and the big guys seem to have some issues lately but

the smaller one like Mazda and Subaru still very good ... I got a Mazda 8 years on now, not a single issue.
when I had a Holden year 2 small thing start to play up, I decided to end their life early and got rid of it in year 4


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## McLovin (23 August 2014)

ROE said:


> Have you ever own their espresso machine? the smaller manufacturer of these,  they are awesome like Ferrari of car




No, I don't drink coffee. I own a coffee plantation though.



ROE said:


> I think Euro car the reliability are the upper end model




Hmm...Have you ever owned an upper end model? My experience owning an M3 was anything but reliability. They work when they work but they need a lot of TLC and you better bring your cheque book when it's time for a service.

The low end Japanese cars a light on features but the car will keep going and going. The average punter who finances their car doesn't care about if they can own the car for 8-10 years because they'll be getting rid of it at the end of the lease. So there's a tradeoff, some people want more features others want a car that they'll own for twenty years. There's so many segments in the car market, I don't think you can make broad statements about the average buyer.


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## McLovin (3 September 2014)

PMV increased their stake. That gives me a bit more confidence around the CEO's departure.


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## VSntchr (4 September 2014)

McLovin said:


> PMV increased their stake. That gives me a bit more confidence around the CEO's departure.




Yeah it is a vote of confidence. They didn't rush in either, buying started on 26th after the fall on the 21st. So enough time for Sol Lew to ask a few questions at least.

It's the first time they have increased since 2010, so perhaps it gives a bit of insight into their intentions going forward, which has to be considered seeing as they own nearly a third of the company...


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## VSntchr (18 September 2014)

BRG ran really hard on the back of the Premier Inv. purchasing...right up to $8.20ish...but has since falling right back and is testing the slump of the first day since the result.

Interestingly NVT has also slumped quite hard. Both companies are regarded by many as high quality, have suffered big SP plunges only to recover...and now slump again going ex-div..


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## herzy (12 November 2014)

I think the fall will continue for a bit. Sales seem to not be very strong, and a big focus on the decrease on juicing in the US. Underlying growth good of course, and seems to have plenty of room to grow the business long term, but I think the FY15 results (at least first half) won't be great. Increase in divvy despite profit reduction seems a bit odd, but I guess it's to keep punters like me happy. 

Looking to buy in - just hoping it gets cheaper. 

Could somebody tell me why they were adversely affected by USD increase? I would have thought that's a good thing...


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## pixel (12 November 2014)

herzy said:


> Could somebody tell me why they were adversely affected by USD increase? I would have thought that's a good thing...




When they repatriate USD profits, they only get 86c Aussie for each USD;
If the Aussie was stronger, they'd get more.


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## herzy (12 November 2014)

pixel said:


> When they repatriate USD profits, they only get 86c Aussie for each USD;
> If the Aussie was stronger, they'd get more.




Wouldn't you get 14% MORE profit converting USD (profits) to AUD now than when they were at parity?

When they repatriate USD profits, they get 1.14 AUD, not .86 (I think you have that the wrong way around).


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## pixel (12 November 2014)

herzy said:


> Wouldn't you get 14% MORE profit converting USD (profits) to AUD now than when they were at parity?
> 
> When they repatriate USD profits, they get 1.14 AUD, not .86 (I think you have that the wrong way around).




sorry, you're right 
I'm trying to do too many things at once


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## skc (12 November 2014)

herzy said:


> Could somebody tell me why they were adversely affected by USD increase? I would have thought that's a good thing...




May be they have plenty of costs based in the $USD as well? E.g. Do they manufacture in China and sell in Aus with the Yuan being linked to $USD?


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## Ves (12 November 2014)

skc said:


> May be they have plenty of costs based in the $USD as well? E.g. Do they manufacture in China and sell in Aus with the Yuan being linked to $USD?



Breville is a designer,  not a manufacturer.   Their source of profitability is reliant on their ability to differentiate their products through design capability & value-adding,   and also their marketing ability.   

The product manufacturing is outsourced to Chinese manufacturers, as far as I understand  (just like most things these days).

For this reason there are _low_ capital requirements.   It's basically a working capital (inventory + debtors) + people business.

It's earnings are effected by two cycles:  the product development cycle (see fluctuating capex / R & D - especially when they enter new markets)  & the economic cycle.    Their cash flow decreases when they need to rejuvenate & restock their product range in a geography.    

My understanding is that the last report highlighted this happening in US / Australia, which also had patchy economies.  The market has continued to re-rate it on the basis of this being more structural / permanent / erosion of profitability rather than a transitional period  (the last period was around the GFC in the USA for instance).  Or perhaps it initially underestimated the effects of the cycles.

The market is probably playing tug-of-war between the two scenarios of cyclicality of earnings & permanent (part or full) erosion of excess profitability.

Probably doesn't help that a number of retailers have downgraded earnings recently.  Don't really think it has much to do with the US dollar.


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## herzy (12 November 2014)

Ves said:


> Don't really think it has much to do with the US dollar.




Really appreciate the in-depth analysis Ves - but I was referring to comments made in the AGM today, where they specifically flagged the high USD affecting profits.


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## Ves (12 November 2014)

herzy said:


> Really appreciate the in-depth analysis Ves - but I was referring to comments made in the AGM today, where they specifically flagged the high USD affecting profits.




Sorry I was just rambling.... more for my own benefit  (so I didn't forget what I was thinking today).

The AGM comments re higher USD were in relation to the A & NZ market.   Breville is an importer (ie. they outsource manufacturing to China),   so that part of what SKC said I agree with.  They'll just re-price / re-align their cost base long-term if they really do have a competitive advantage in Australia.


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## hiddencow (3 December 2014)

Was going to PM this to Valuesnatcher but your inbox is full so I'll post it here.

I'm just having a look at BRG and trying to figure out if a lower AUD will be positive or negative for them.
While they have a lot of overseas earnings, the costs of their products seem to be all in USD.
The lastest results noted that ANZ profits were down due to a higher USD. It was noted that prices would be adjusted though.

The way I see it is that in the short run a lower AUD may affect the ANZ profits but in the long run when prices adjust, overall profit should be higher when reported in AUD, especially for overseas earnings which aren't impacted by moving exchange rate. The same USD profit will just translate to a higher AUD profit.

What I found interesting is the loss they suffered for foreign currency derivatives. All their derivatives are buy USD/Sell other currency with the majority being AUD. I would have expected a gain on derivatives for the year with the AUD weakening. Instead it looks like they got a pretty raw deal, hedging at an average 88c. Of course the derivatives would be in profit now but I thought it was weird how you can lose on your hedge but also suffer lower profits due to higher USD costs.

Would love to hear your thoughts.
Cheers


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## VSntchr (3 December 2014)

I think that BRG with regard to the falling AUD is a good prospect. 
If management is successful in continuing to expand the US division, and to get the UK division firing also, then the Aus earnings will become smaller and smaller proportion of the overall earnings due to their reach within our market being much closer to saturation and as such providing lower prospects of double digit growth going forward. 
From an individual investors perspective when assessing these factors I think timeframe is important. For me, I like the safety of having something that is likely to increase its foreign earning power over the med/long term. This reduces my overall portfolio's exposure to the AUD.


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## galumay (8 March 2015)

I am reassessing my holding in BRG and on looking through the H1 report I am a little confused, operating cash flow is negative for the half, which is obviously not a good thing, but it looks like historically it is negative often in the first half of the FY before returning to positive territory by year end.

I was trying to make sense of that in terms of the retail cycle, but couldnt really!

I am interested because my DCF valuation for BRG was based on the last years FCF, but obviously if I now reassess extrapolating the fall in FCF to negative then the valuation goes out the door! 

I also notice the EPS seems to be the opposite, first half results are usually significantly more than half of the FY results - which seems more in line with retail cycle.

Overall my inclination is to sell, on all my metrics they are looking over valued and I cant really see enough potential growth to see them revert to mean that way so a fall in price seems more likely to me.


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## hiddencow (8 March 2015)

They make a lot of sales to retailers for the Christmas period and collect the cash in 2H?


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## galumay (8 March 2015)

hiddencow said:


> They make a lot of sales to retailers for the Christmas period and collect the cash in 2H?




mmm...but then how to explain the earnings being on the opposite cycle!


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## hiddencow (8 March 2015)

I haven't read the financials but what you've described sounds normal. Lots of sales for Christmas so first half profit is higher. Collect cash from suppliers on Jan so second half cash flow is higher.


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## galumay (23 February 2017)

Nice H1 result today. Business doing well, happy I got in when i did, i worried for a while I had paid too much, but the truism about paying a fair price for a good business resonates here.


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## tech/a (24 February 2017)

galumay said:


> I am reassessing my holding in BRG and on looking through the H1 report I am a little confused, operating cash flow is negative for the half, which is obviously not a good thing, but it looks like historically it is negative often in the first half of the FY before returning to positive territory by year end.
> 
> I was trying to make sense of that in terms of the retail cycle, but couldnt really!
> 
> ...






galumay said:


> Nice H1 result today. Business doing well, happy I got in when i did, i worried for a while I had paid too much, but the truism about paying a fair price for a good business resonates here.




Amazing how a rising share price alters perception.


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## galumay (24 February 2017)

A typically snide and inaccurate remark from you Mr Duck. 

In the first post you quote I was trying to understand the cash flows in the different halves in the context of my calcualations of IV.

In the second post you quote I am commenting on the h1 report for this year and adding some commentary about my thoughts on the price I paid for BRG. 

My perception hasn't changed at all.


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## Klogg (24 February 2017)

tech/a said:


> Amazing how a rising share price alters perception.




I would suggest that a good set of results has changed perception, if it has at all.


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## Ves (24 February 2017)

Klogg said:


> I would suggest that a good set of results has changed perception, if it has at all.



I think in some situations that could be a bad thing too! *hides*


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## tech/a (24 February 2017)

galumay said:


> A typically snide and inaccurate remark from you Mr Duck.




Oh I don't know about that but thank you anyway.


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## Ves (24 February 2017)

tech/a said:


> Oh I don't know about that but thank you anyway.



To be fair,  I thought your comment,  was generally very applicable when looking at the way most people view the market.


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## galumay (24 February 2017)

Ves said:


> To be fair, I thought your comment, was generally very applicable when looking at the way most people view the market.




To be fair, yes it possibly was applicable to the way most people view the market, BUT, it wasnt directed at most people. It was pure trolling and I was silly enough to bite. More fool me!


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## galumay (17 August 2017)

Good result for BRG, Australia particularly strong, but all segments growing. Been a very strong performer in my SMSF.


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## greggles (16 August 2018)

galumay said:


> Good result for BRG, Australia particularly strong, but all segments growing. Been a very strong performer in my SMSF.




Another good result today. FY18 results were announced and beat expectations.

Revenue grew 7.7% to $652.3 million while EBITDA grew 11.6% to $100.2 million. Net profit after tax was $58.5 million, up 8.7% from the previous year. The company declared a final dividend of 16.5c per share, 60% franked, bringing the total dividend to 33c per share, 60% franked, an increase of 8.2%.

The BRG share price finished the day at $13.10, up 12.54%.


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## galumay (16 August 2018)

I sold out earlier in the year, price got too far ahead of my range of intrinsic value so I followed my strategy and sold. Its certainly a solid business!


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## greggles (14 February 2019)

Impressive Half Year Ended 31 December 2018 financial result for BRG. After declining from $14 to around $10.25 in the last four months of 2018, the BRG share price has spiked again and is now trading at $14.22, up 19.10% on yesterday's close and currently at all-time highs.


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## finicky (13 February 2020)

Discretionary spending Armageddon!
Continuing expansion into Europe - revenue there up.60%
Able to spend more on marketing and R&D which is allocated as % of net sales

Disc: not held

*Breville Group Limited (BRG) Results
Half year ended 31 December 2019*

Revenue increase of 25.4% to $552.0m

EBIT2 increase of 15.6% to $72.0m

Interim dividend increased to 20.5 cps (60% franked)

• Pleasing first half results with strong revenue growth, continued successful geographic
expansion, double-digit EBIT growth and a normal seasonal pattern to cashflow
• Double-digit revenue growth in all regions and categories in the Global Product segment, with
revenue growing +20.3% in constant currency
• Continued double-digit EBIT growth, +15.6% pa on a comparable basis (excluding AASB 16
impact)
• EBIT margin2 at 13.0% primarily reflects the dilutive effect of strong USD, and, partially, higher
growth in our lower margin Distribution segment, and partially the net impact of tariffs in the USA
• NPAT increase of +14.1%
• Normal seasonal cashflow with peak receivables following holiday season sales
• *ROE of 22.6%* showing continuing strong return on organic growth investments
• Interim dividend of 20.5 cents per share (+10.8%), 60% franked, has been declared


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## galumay (13 February 2020)

One I should not have sold, i thought its price had run too far ahead of range of fair value and sold at $11 a couple of years ago. I should have realised that my valuation was out of date and better understood the drivers of the business. Lesson learnt, I hope!


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## finicky (13 February 2020)

Someone on a forum a year or two ago, maybe whimsically, described this as the CSL of kitchen appliances.
I've wanted to add it for a long time but  seemed a bit pricey to me too.


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## Dona Ferentes (13 May 2020)

finicky said:


> Someone on a forum a year or two ago, maybe whimsically, described this as the CSL of kitchen appliances.
> I've wanted to add it for a long time but  seemed a bit pricey to me too.



In a Trading Halt, awaiting a *Capital Raising* (like many)(boost balance sheet, or acquisitions?)

Breville Half-yearly on 13 Feb put a bullet under the price, but it quickly sold off, gained speed in March with Covid-19 panic, and quickly bounced back. Solid support since then, due to "iso-spending" ?

I didn't realise how big the company was in N Am. Also the Nespresso link-up has been a winner

The outlook mentions _increased spending on marketing and R&D as a percent of net sales_, which is a reality in competitive markets. And I wonder how the supply lines are, seeing most of their product range is "_medium level complexity ex-China_".


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## Trav. (19 January 2021)

BRG doing well up 3.6% today. I will be happy for it to break $28.84 and then any more is a bonus.

Holding @ $25.94


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## galumay (19 January 2021)

One I should never have sold. Oh well, a profitable mistake, just a lot of potential profit missed.


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## Trav. (20 January 2021)

Trav. said:


> I will be happy for it to break $28.84 and then any more is a bonus.



Another good day today, high of 29.01 but didn't hold, maybe we will have another go tomorrow.


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## Trav. (24 January 2021)

Trav. said:


> I will be happy for it to break $28.84 and then any more is a bonus.




Well I played it safe here and took profits on Friday...

WHY ?

ATH made on Friday $29.95
Very nice profit made and happy to bank
and lastly - Daily chart showed a possible W3 completion at a Typical price of $29.04

So I will be watching to see if it retraces then go back for another bite


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## peter2 (24 January 2021)

Hi @Trav.  Looks a nicely structured short term trade. Rinse, repeat for the next 100 trades. Seems like a good plan.


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## Dona Ferentes (11 March 2022)

Breville Group Limited (ASX: BRG) has entered into an agreement to acquire 100% of the Italian-based prosumer specialty coffee group, LELIT, effective 11 March 2022 AEST. 



> _LELIT’s range of espresso machines and grinders, together with the Baratza range of grinders, creates an increasingly strong presence in the specialty coffee channel while providing LELIT with an immediate opportunity to strengthen its presence outside of Europe. _




_Breville will acquire 100% of the LELIT group from the founders and current owners on a cash and debt free basis for a total consideration of approximately €113m, subject to customary settlement adjustments.  Half of the consideration will be paid in cash and half by the issue of fully paid ordinary shares in BRG priced at A$27.64 per share which will be subject to a five-year trading lock post completion. The cash portion will be *funded from existing cash reserves and debt facilities.

..........................*_
prosumer - _haven't encountered that neologism before_


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## Dona Ferentes (26 May 2022)

galumay said:


> One I should never have sold. Oh well, a profitable mistake, just a lot of potential profit missed.




But BRG has been on a bit of a slide recently, dropping from well above $30 at the start of 2022 to just $20 today.

Very much a global company, and one of the few to make the transition, but it is still in the category of *consumer discretionary* and subject to whims and the power of the purse-strings

The company reaffirmed its earnings guidance earlier in May, saying  there had been no significant change in economic conditions in its major markets, new product launches were performing well, and its supply chain was functioning well.

Breville also stated its global revenue opportunity was $9.7 billion, or nine times its current annual revenue.

But the current PE is still at 26 times (was nearer to 50 only five months ago).



> Delonghi, the Italian appliance manufacturer which competes with Breville in global markets, is valued at an earnings multiple about half the level of Breville.


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## Dona Ferentes (10 June 2022)

Breville Group has reconfirmed that it expects full-year 2022 earnings before interest and tax to be in line with previous guidance and market consensus of about $156 million.

-  _and that has only stabilised the fall this CY, to just over $18. Probably coming out of lockdowns to 'normal' trading conditions?_


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