ASX:BRG
Breville Group Ltd
Investment Summary
The fund managers believe that Breville Group Ltd (BRG) has transitioned under CEO Jim Clayton from a niche appliance brand to a global innovation leader. In their opinion, the company’s successful 'Acceleration Program' has enhanced its operating model, allowing for rapid global product launches. They highlight that the introduction of a unified go-to-market platform led to a significant increase in efficiency, demonstrated by the quicker sales ramp of new products in markets like Germany compared to the UK. Additionally, they note that despite increased marketing and R&D expenditures, EBIT growth remains strong, reflecting a strategic long-term vision. Management sees potential in evolving their offerings into holistic solutions, such as Breville+ and Beanz, which could prove lucrative. With opportunities for growth in underpenetrated markets like the Americas and Europe, the managers assert that there is considerable room for expansion and suggest that successful execution of growth plans could yield significant upside in the share price.
Commentary From The Managers
Greencape Capital
31 Dec 2023
$26.97
- Greencape Capital continues to hold a positive view on Breville Group (BRG) as it evolves under CEO Jim Clayton since 2015.
- The launch of the ‘Acceleration Program’ in 2016 marked a pivotal moment for the company, pushing for a significant operational transformation.
- This transformation involves enhancing the go-to-market strategy, expanding into new geographies, and increasing investment in R&D and marketing.
- Management's strategy has been described as ‘fixing the plane whilst flying it’, balancing investment and earnings growth.
- The establishment of a strong global go-to-market platform has facilitated quicker product launches, illustrated by the rapid success of the Barista Express Impress.
- Germany's revenue achievements highlight the effectiveness of this new model, surpassing the UK’s previous performance.
- Despite increasing marketing and R&D expenditures, Breville has maintained a solid EBIT growth rate of 15% per annum.
- Breville is evolving from selling hardware to offering comprehensive ‘solutions’, enhancing customer experience and brand loyalty.
- Examples include Breville+, providing guided recipes and classes, and Beanz, a coffee subscription service aimed at improving customer satisfaction.
- The potential for Beanz is significant, with estimates suggesting a potential gross profit of over $12m from subscriptions.
- Expansion opportunities exist in the Americas and Europe, with an anticipated growth factor of 6x in sales per capita compared to Australia.
- The espresso coffee market shows ample room for growth, with current penetration rates indicating significant potential for Breville's coffee machines.
- While BRG trades at a premium, Greencape Capital believes this is justified by a robust earnings outlook with double-digit growth projected for over a decade.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.