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Breville Shares Surge After Punt On Excess Inventory

Breville shares have surged after a punt on delivering excess inventory ahead of the coronavirus, to beat US tariff’s on goods manufactured in China has paid off.

Breville who also own the brand names Sage and Kambrook saw their shares soar 27.6 per cent yesterday to close at a record $25.50 after the maker coffee machines, blenders, toasters and microwaves forecast double-digit profit growth this year.

The 88-year-old Australian appliance maker now sells products in almost 60 countries is now expanding into new European markets including Germany, Austria, Benelux, Switzerland and Spain.

Currently several of their competitors are struggling to confirm when their China based factories will return to work or when they can guarantee supply to retailers.

According to their latest financials, Breville sales rose 25.4 per cent to $552.03 million, with revenue rising more than 10 per cent in North America and Australia/New Zealand, and sales soaring 63 per cent in Europe. Sales from Europe are now bigger than those from Australia/New Zealand and are set to grow as Breville expands into France in the June-half.

Earnings rose 28.5 per cent in the distribution business, which distributes Nespresso, Breville and Kambrook appliances, and 13 per cent in the global product business, lifting group earnings before interest and tax by 17.1 per cent to $72.98 million.

According to the Australian Financial Review Solomon Lew’s Premier Investments now faces pressure to sell its 28 per cent stake in Breville and return the cash to investors.

This investment is now worth more than $1 billion.

Mid last year Breville shares tumbled 20 per cent to $15.35 after analysts became concerned about the risks associated with the production inventories.

Since then, the shares have soared 66 per cent, and have now more than doubled since touching a 52-week low of $11.94 on February 13 last year according to the AFR.

Premier’s stake, most of which was acquired at $1.50 a share, is now worth $900 million compared with a book value of $239 million, and Mr Lew’s personal stake is worth about $183 million.

“We ask the question and the general impression is they’re great believers in the long-term future of [Breville],” said Airlie Funds Management’s head of Australian equities John Sevior.

“You could have said that at any point in the last few years – why not sell it and give back the money – but the business of Breville has got better and better.”

“They’re very patient investors… they tend to think much longer term than stockbrokers and merchant bankers,” said Blue Ocean Equities analyst Philip Pepe.

“They exist to invest in retail brands. What they have got out of this is an investment that’s produced pretty good results in dividends and capital gains.”

Breville chief executive Jim Clayton expects full-year earnings to rise at least 13 per cent after interim net profit rose 14.1 per cent to $49.7 million, underpinned by demand for new products such as the Barista Pro, the Bluicer (a combination juicer and blender) and an air fryer.

The company expects EBIT of about $110 million for the full year, up from $97.3 million last year and in line with consensus forecasts. Earnings growth will slow in the June-half due to increased spending on marketing and research and development.

Breville increased its interim dividend 2¢ to 20.5¢ a share, payable on March 18.

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