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Sizzling hot: Why the Breville share price rose 27%

The Breville Group Ltd (ASX: BRG) share price is sizzling hot, it jumped by over 27% after reporting its FY20 half-year result.

Breville’s numbers

Breville reported that its revenue increased by 25.4% to $552 million with double-digit growth in all regions and categories in the global product segment, with revenue growing 20.3% in constant currency.

Earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 20.8% to $85.2 million and earnings before interest and tax (EBIT) went up 17.1% to $73 million. Net profit after tax (NPAT) increased by 14.1% to $49.7 million.

EBIT margins were affected by the ongoing and increasing investment in marketing and research & develop. Margins were also hurt by the strength of the US dollar which boosts sales but is hedged at an EBIT level. The net impact of increased tariffs in the USA were also a negative.

Breville’s earnings per share (EPS) increased 14% to 38.1 cents and its return on equity (ROE) improved from 22.5% to 22.6%.

Balance sheet and dividend

Breville revealed that its net debt at the end of the period was $52.9 million, representing the seasonal low point in the net cash position with peak season sales yet to be collected. In July 2019 the company acquired ChefSteps which increased Breville’s intangible assets by $45 million.

The Board of Breville decided to declare an interim dividend of 20.5 cents, an increase of 10.8%.

Outlook

The company said that the impact of the coronavirus on Breville would be minimal because manufacturers were coming back to work, it is holding more finished goods than normal and because China is immaterial in sales terms to Breville.

Breville is expecting EBIT for the full year of around $110 million, before the effects of AASB 16, with increased spending on marketing and R&D as a percentage of sales.

The market obviously loved this result and the company is predicting good growth for FY20. I’m personally unsure how big Breville can become or how defensive it is, so I’m happy to leave investing in the appliance maker to other investors.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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