Australia | May 19 2020
After Breville sustained strong sales of its appliances in the first four months of 2020, brokers are asking just how resilient the business will be as the pandemic continues to pressure household incomes.
-Strong shift in sales to online
-Upside risk from international expansion
-Inventory build in preparation for new markets
By Eva Brocklehurst
One of the few businesses to trade strongly over recent months, Breville Group ((BRG)), has proven resilient in the face of the pandemic given the demand for appliances and the new-found interest in preparing food at home.
The question is: how much of the spending is simply a pulling forward of purchases while people work from home. How many toasters can one own? Will there be a contraction in expenditure over the next few months?
Global product revenue has continued to grow, albeit at a slower rate in March and April relative to January and February. Different levels of market disruption have meant strong sales in Australia and the UK, while the US and Europe have lagged because of a substantial store closures.
UBS believes the update, which highlighted revenue growth of 32% in the first four months of 2020, shows the resilience of the business model and a strong shift in sales to online, while international expansion provides the upside risk.
UBS, conservatively, assumes revenue growth of 10% over May and June for both global products and distribution. Global products revenue, around 80% of sales, lifted 23.7% in the period while distribution, around 20% of sales, grew 29.7%.
Ord Minnett assesses the business was well-placed ahead of the market disruption caused by the pandemic, because of higher-than-normal inventory levels surrounding the risk from Brexit.
The company has, after withdrawing guidance in late March, announced a capital raising along with the impressive revenue growth. Breville is raising $104m in equity to support working capital investment and R&D.
Wilsons notes a cautious tone from management, given lenders insisted on the capital raising despite the liquidity position being favourable. This signals headwinds to demand may be emerging, amid the potential for retailer de-stocking leading into Christmas.
On the other hand, the company is primed for aggressive expansion should the global economy recover faster. Macquarie suggests the additional capital means the business can avoid missing sales and retain the headroom to expand into new areas, as well as assess opportunistic acquisitions.
Credit Suisse believes the equity raising provides the flexibility to handle disruptions. Still, the duration and potential impact of the pandemic remain unknown. Working capital generally picks in November and the company is expecting further inventory build up in preparation for entering new markets in FY21.