Shifting Investor Sentiment on Household Goods Results in Breville Shares Being Slightly Undervalued

While still trading in 3-star territory, shares in Breville are beginning to look cheap, trading at about 9% below our unchanged AUD 20.00 fair value estimate. Breville last traded with a 4-star rating when coronavirus pandemic pessimism reached its peak in March 2020, with shares plummeting as low as AUD 10.00 in intraday trade. But the opportunity was short-lived. Shares quickly returned to lofty heights as Breville's sales continued to grow strongly despite COVID-19 shutdowns of many retailers in key markets, demonstrating the significant brand strength underpinning the firm's narrow economic moat. Increased time spent at home amid movement restrictions was also beneficial for many of Breville's small kitchen appliances such as coffee machines, sandwich presses, and blenders. But shares have fallen about 44% since the beginning of calendar 2022 as inflationary pressures weigh on freight and production costs, geographic expansion slows, and cost of living pressures appear set to soften demand for discretionary goods.