Breville's Earnings Growth Remains Strong, but Geographic Expansion Is Slowing

We maintain our AUD 20.00 fair value estimate for shares in narrow-moat Breville following the release of fiscal 2022 earnings. Underlying operating earnings lifted 15% to AUD 156 million (albeit 6% lower than our AUD 167 million forecast) as full-year contribution from Mexico, Portugal, and Italy bolstered Breville's revenue base and new product launches drove earnings growth in existing regions. We think the onset of COVID-19 and increased working from home has further fueled strong demand for small home appliances since the onset of the pandemic, and Breville likely benefited from an increased uptake of online shopping where consumers tend to favour trusted, well-known brands such as Breville and Sage. The board declared a fully franked final dividend of AUD 30 cents, representing a payout ratio of 40% of underlying EPS. With just AUD 4 million in net debt, Breville's balance sheet remains in excellent condition, and the firm has sufficient headroom to comfortably maintain its payout ratio of around 40% of earnings without stretching its balance sheet or compromising expansion plans.