BRG - Breville Group

[RandR]

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.

 

[McLovin]

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!).

 

[tinhat]

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.

 

[McLovin]

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.

 

[DocK]

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.

 

[Klogg]

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...

 

[McLovin]

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.

 

[skc]

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.

 

[VSntchr]

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.

 

[Ves]

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.

 

[Ves]

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.

 

[VSntchr]

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.

 

[piggybank]

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

​

 

[VSntchr]

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.

 

[VSntchr]

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.

 

[skc]

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.

 

[McLovin]

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.

 

[ROE]

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

 

[McLovin]

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

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.

 

[skc]

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?

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).