Breville has benefited from the current home-focused environment while retaining global expansion potential. Morgans initiates coverage of the stock.
-Main downside risk stems from the impending economic downturn
-Yet consumers with job security may still allocate expenditure to home
-Well-placed to take advantage of opportunities caused by disruption
Is there a significant prize on offer for investors in
Macquarie, too, considers Breville an attractive portfolio holding for the long-term because of the growth potential. While trading patterns over the next 6-12 months are hard to forecast, the broker assumes any macro-economic headwinds will be countered by continuing expansion.
Revenue growth increased to 18% in FY19 and Morgans forecasts 24% for FY20. The company's brands cover three key segments such as cooking, beverages and food preparation and are sold in 70 countries, and this is just the beginning the broker asserts.
COVID-19
The main downside risk over the short term is potential for the pandemic to affect sales, given the exposure to retailers and consumers, although to date there has not been a material slowdown.
Revenue grew 32% over the first four months of the second half of FY20 and Morgans suspects Breville benefited from the stay-at-home environment, which boosted demand for coffee, food preparation and cooking products.
However, this was offset by the closure of retailers during lockdowns. Moreover,
Breville has pointed out sales to May were strong in
The main issue now, Morgans believes, is the performance over the first half of FY21 and how a recession will impact demand. Hence a moderation of revenue growth in FY21 is expected before a rebound to 14% in FY22.
Higher unemployment, as wage subsidies conclude, could put downward pressure on consumer confidence, Macquarie suggests, although government stimulus is expected to be still aimed at supporting demand.
Given the inability to travel internationally and residual concerns around public gatherings, consumers with job security may allocate expenditure towards home categories nonetheless.
Balance Sheet Flexibility
A
Macquarie calculates total debt facilities are now
Morgans forecasts 15% three-year compound growth in revenue with the bulk coming from
The company's two prime segments include premium products designed and developed by Breville that are sold globally, either directly or through third parties, and distribution of products designed and developed by third parties, usually under licence.
While considering the shares are somewhat fully priced,
FNArena's database has three Buy ratings and two Hold for Breville. The consensus target is
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