One of our favourite investing thesis is buying what you use and understand. So we put our theory to the test after our recent purchase of a Breville espresso machine and see Should I Buy Breville Shares?
Should I Buy Breville Shares – About
Breville Group is a kitchen appliance company that operates in Australia, NZ, America’s and Europe (under the SAGE brand).
The company produce some of the worlds most popular at-home barista machines and other appliances such as blenders, juicers, ovens and pretty much anything else that you need for the kitchen.
In the UK and Europe, the company goes to market as the Sage brand and as the Breville brand in the rest of the world.
Should I Buy Breville Shares Price
Shares in Breville Group are up 19.45% this year, to trade at a price of $32.55 per share and a market cap of $138million. This is slightly less than the ASX200 benchmark of 27%.
Over the past 5-years, the shares have outperformed the market returning shareholders 294% over the period.
BRG Share Price ASX Facts (ASX:BRG)
|Share Price||$32.55 per share|
|EPS||$0.59 / share|
After surveying 143 Investors about their current BRG sentiment: BUY-HOLD-SELL as well as their target price over the next 12-months here are the results;
The results from this survey show there is currently a strong HOLD investor sentiment on the BRG share price. The Consensus from the Prophet community survey was an average price of $30.17, which indicates the community is expecting the price to sit slightly lower from here over the medium term.
So how much are Breville Group shares worth? Let’s get into it.
Should I Buy Breville Shares – FY21 Annual Report
Breville group released their FY21 Annual report to the market on 17th August, the group reporting a 24% increase in revenue year on year and EPS up 34.8%, however at the same time reduced dividends by 35.4%.
Headline Achievements for the group in their FY21 Annual report:
- Record Group sales reaching ~$1.2bn Improved gross margin with higher average selling price offsetting input cost inflation
- EBIT growth rate +39.6%, or +24.1% against normalised FY20 (pcp +16.2%)
- EPS growth +34.8%
- Full year dividend 26.5c, 100% franked, in line with revised 40% payout ratio to support continued funding of growth agenda
- High net cash position reflects continued low working capital that should reverse in FY22
Breville group also included in their FY21 report statistics on their EBIT growth YoY, which shows EBIT has been growing at greater than 10% since 2016 and EBIT expansion continues into FY21. The groups share price is up 264% over the same 5 year period.
Whilst we don’t typically look too much into broker guidance, it’s worthwhile pointing out that UBS retained its buy rating and $35.70 price target on its shares. UBS appears confident its solid growth can continue for some time to come.
Breville Group – FY21 Income Statement
Breville reported a gross profit margin of around 34% and an EBITDA margin of ~13% of revenue. GP and EBITDA margins also increased slightly YoY by around 1% for both metrics.
Breville Group – FY21 Balance Sheet
The group seems well capitalised with total assets of 770million vs total liabilities of 264million. This leaves Net assets of $506million.
The group also have $0 of long term debt meaning a 0% debt to equity ratio (we typically like companies growing rapidly with minimal debt)
Net cash at 30 June 2021 was $129.9m which was largely flat year-on-year (PCP $128.5m). The companies inventory levels increased from $153million to $216million in the year, this is similar to Kogan in FY21. We will be looking at keeping a close eye to see if the group can sell the inventory at similar rates in FY22.
Breville Group mentions that a number of shipping related issues were behind excess inventories being carried on their balance sheet. The group also flag that there may be potential increases to their supplier costs due to COVID.
Breville Group Dividends
In FY21 the group dropped their dividend’s slightly from the previous year, however, in the report the company mentions that this was to align the dividend payout ratio to be in line with 40% of earnings. The company mention this is to support continued funding of their growth agenda
The group declared a final dividend of $0.135 taking the full-year dividend to 26.5c per share (100% franked).
At the current BRG Share price and Dividend Per Share, the Dividend yield is relatively low compared to other ASX peers, which currently sits around 0.9%. This is in comparison to the industry average of 1.5% and the top 25% of dividend payers on the market averaging 5.2%
The group’s dividend is down 35.4% in FY21 as compared to FY20 where they paid out a 41c per share dividend.
|BRG Share Price ASX||$32.55 / Share|
Breville Group typically announces a dividend with the release of its half-year results in February and full-year results in August as seen in their financial calendar. Dividends are typically paid twice a year, in March (interim dividend) and September (final dividend).
Should I Buy Breville Shares – Fundamentals
Breville is the 113th largest company by market capitalisation on the ASX with a market cap of just over $4.5billion. The group has an NTA per share of $1.8 and a price to earnings ratio of 51x.
For a Consumer Cyclical business this Price to earnings is in the higher range. Investors must be expecting significant growth in the company for a number of years.
|NTA per share||$1.81|
|Volume (4w avg)||302,790|
Earnings, and NTA per Share:
We can see BRG shares currently have earnings per share of $0.59, this gives it its PE of 51x. Another way of looking at this is that ~1.8% of their share price is backed by solid earnings.
PE 20+: The company is overvalued/has high investor sentiment regarding growthThe Ultimate Stock DD Checklist
Their Net Tangible Assets per share is $1.81, representing 5.5% of the current share price. In comparison to say Commonwealth Bank, which has ~37% of their share price in NTA.
ASX:BRG Ownership and Recent Insider Transactions
Breville Group Shares are owned majority by Institutions, general public and public companies at 38.1%, 32% and 26.3% respectively.
Individual insider ownership is low at 1.2% however, this is roughly in line with other companies of a similar size and nature of business.
Steven Fisher, Chairman of the board recently purchased 60,000 shares at a max price of $32.26 for a total value of ~$1.9million.
|24 Aug 21||$1,925,646||Steven Fisher||I||60,000||AU$32.26|
|17 Aug 21||$108,146,716||Greencape Capital Pty Ltd||C||4,072,159||AU$26.56|
|17 Aug 21||$111,101,073||Challenger Limited||C||4,072,159||AU$27.28|
|30 Jun 21||-$392,286||Greencape Capital Pty Ltd||C||13,100||AU$29.95|
|30 Jun 21||-$392,286||Challenger Limited||C||13,100||AU$29.95|
|29 Apr 21||$32,119||Steven Fisher||I||1,221||AU$26.31|
|08 Mar 21||$19,872||Dean Howell||I||736||AU$27.00|
Should I Buy Breville Shares – Prophets Take
Breville group appears to be continuing their growth with EBIT growth up ~22% this year compared to the prior period. The company has also delivered record revenue and are improving growth margins. However, BRG ASX has not provided any guidance leading into FY22.
The group’s share price has performed well over the past 5 years up 299%. However, with the company now trading on a PE of over 50x and a Price to Sales of over 4x we are cautious of the current valuation.
Whilst the company has reduced their dividend payout ratio recently, the company maintains the stance that this is to allocate these funds in supporting the companies growth agenda. We will be keeping a close eye on how the funds are contributing to company growth in the following periods.
Whilst we like the company and the growth prospects look decent, we simply cannot get our heads around the valuation at the current share price. The risk vs reward in our opinion is not worth the investment at current levels.
Should the price come down substantially we may consider an investment. However, for the moment we are more than happy knowing that we hold this appliance manufacturing company in our VAS200 ETF in Pearler.