Oracle Jet And Beanz Service Launches Will Drive Future Opportunities

Key Takeaways

• Expansion into new markets and the scalable Beanz service is expected to drive future revenue growth and semi-recurring revenue gains.
  
• Diversified manufacturing and financial strength position Breville to mitigate risks and capitalize on growth opportunities, enhancing margins and shareholder value.
  
• Currency risks, elevated shipping costs, and potential tariffs challenge Breville's profitability, while strategic shifts in sales models may impact short-term earnings and revenue.

Catalysts

Designs, develops, markets, and distributes small electrical kitchen appliances in the consumer products industry in the Americas, Europe, the Middle East, Africa, and the Asia Pacific.

• Breville's expansion into new geographies such as the Middle East and China is expected to significantly increase its addressable market, potentially driving higher future revenue growth.
  
• The Beanz service, a coffee supply platform that complements Breville's coffee machines and has experienced 71% growth year-over-year, represents a new semi-recurring revenue stream that could enhance earnings over time as it scales.
  
• Investment in new product development, including the strong performance of new launches like the Oracle Jet, is expected to support future revenue growth as these products roll out across more regions.
  
• The company's strategic move to diversify its manufacturing geographically, notably by moving production of 120-volt products out of China, could mitigate risks associated with tariffs and stabilize or improve net margins.
  
• With strong cash flow and a low leverage position, Breville has the financial flexibility to invest in growth initiatives or strategic acquisitions, potentially enhancing future earnings and shareholder value.

Breville Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Breville Group's revenue will grow by 9.6% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 8.1% today to 7.8% in 3 years time.
• Analysts expect earnings to reach A$167.2 million (and earnings per share of A$1.15) by about August 2028, up from A$132.1 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as A$148 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 36.0x on those 2028 earnings, down from 36.3x today. This future PE is greater than the current PE for the AU Consumer Durables industry at 18.9x.
• Analysts expect the number of shares outstanding to grow by 0.35% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.76%, as per the Simply Wall St company report.

Breville Group Future Earnings Per Share Growth

Risks

• The potential U.S. tariffs on Chinese imports pose a risk, as they could increase costs and impact inventory management strategies, affecting profitability and net margins.
  
• Elevated shipping costs, particularly into the EMEA region, alongside a strong U.S. dollar, have dampened gross margin percentages, potentially impacting net margins.
  
• The move to a direct sales model in China is expected to take time to become profitable, potentially affecting short-term earnings.
  
• The shift from a first-party to a third-party model with Amazon in EMEA could cause temporary revenue headwinds as inventory adjustments occur, affecting topline revenue.
  
• Currency fluctuations remain a risk, especially given Breville's transactional exposure due to purchasing mainly in U.S. dollars, which could impact both revenue and net profits due to hedging dynamics.

Valuation

• The analysts have a consensus price target of A$33.145 for Breville Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$40.2, and the most bearish reporting a price target of just A$21.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$2.1 billion, earnings will come to A$167.2 million, and it would be trading on a PE ratio of 36.0x, assuming you use a discount rate of 7.8%.
• Given the current share price of A$33.29, the analyst price target of A$33.14 is 0.4% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.