Breville Is Selling Plenty of Coffee Machines, but Will Shares Get the Jitters as Expansion Slows?

Breville is a well-run company with high-quality brands. We assign the firm an Exemplary capital allocation rating based on our assessment of balance sheet risk, investment efficacy, and shareholder distribution. The earnings outlook for the small appliance manufacturer is bright. Geographic expansion continues to drive top-line growth, and we expect coronavirus restrictions have fuelled strong demand for small home appliances since the beginning of the pandemic. Breville likely benefited from an increased uptake of online shopping where consumers tend to favour trusted, well-known brands, illustrating the strength of the Breville and Sage brands, which underpin the firm's narrow economic moat. We think Breville's fiscal 2021 EBIT guidance of AUD 136 million is slightly conservative and forecast fiscal 2021 operating earnings of AUD 138 million--an increase of 22% on fiscal 2020. We anticipate continued geographical expansion driving higher sales volumes, and lower promotional activity and favourable mix shift toward the lucrative global product segment leading to a small improvement in group operating margins.