S&P/ASX 200 Index (ASX: XJO) shares can be excellent investments if we buy growing businesses at a good price.
ASX 200 shares can be large enough that they have compelling scale benefits and good profit margins, while still having good growth potential.
In recent weeks expert analysts from UBS have called two of the leading businesses in the world on the ASX as buys.
Let's take a look at how much return potential the following two businesses have.
Imge source: Getty Images
Breville Group Ltd (ASX: BRG)
UBS describes Breville as a designer and developer of small electrical kitchen appliances, operating through its global product and distribution segments.
The broker rates Breville as a buy with a price target of $35.50. A price target is where the analyst thinks the share price will be in 12 months from the time of the investment call. UBS is suggesting Breville shares could rise by 16.8% in the next year.
UBS says that its analysis of coffee machines, representing at least half of Breville's sales, indicates a total addressable market of around $13 billion in its core markets, which are still growing strongly – the historical growth rate has been a compound annual growth rate (CAGR) of 7%. There's also a $2 billion total addressable market from now markets like South Korea, China and the Middle East, with significant potential as a 'coffee culture' develops.
At this stage, the ASX 200 share only has a market share of 4%, which has grown over time.
In a note released earlier this week, UBS wrote:
Our analysis of the global coffee machines market gives us confidence that BRG can more than double its sales in the next 10 years. UBS Evidence Lab data supports continued strong growth ahead in BRG's core geographies, plus an opportunity in new Asian markets like China. BRG has a track record of share gains in each geography, and is not mature outside of ANZ. The stock is down ~20% since Feb25 on the back of short-term earnings risks created by US tariffs, but we think the market is overlooking the bigger picture. In an upside scenario, we see ~30% higher FY35 NPAT which could support a valuation of ~$46ps. Upgrade to Buy.
At the current valuation, the ASX 200 share is trading at 33x FY25's estimated earnings.
Amcor CDI (ASX: AMC)
The other company that UBS talked about was Amcor, which the broker described as a global packaging company specialising in the production of flexible and rigid plastic packaging solutions. It has operations areas Europe, the Middle East, Africa, North America, Latin America and the Asia Pacific regions.
When you think of products across drinks, food, healthcare, personal care, pets and so on that have flexible or rigid packaging, Amcor provides products for numerous customers.
UBS upgraded its rating on Amcor shares to a buy with a price target of $18.25. That implies a large 25% return over the next year, if the broker ends up being correct.
The broker believes the ASX 200 share offers double-digit earnings per share (EPS) growth after the Berry merger. It's forecasting a CAGR of 12% for EPS over the next three years thanks to the merger and delivery of $650 million in synergies when the broker thinks only $65 million of synergies are priced in.
UBS also said the EPS growth potential supported by share buybacks and increased growth capital expenditure. The broker believes EPS growth could lead to a re-rating of the company's price/earnings (P/E) ratio from 11 to 15.
This is a major change considering the last three years has seen "benign EPS growth" because of destocking and inflation-linked consumer pressure.
Discussing the ASX 200 share's revenue growth potential, UBS said:
We forecast 2.2% revenue growth across FY26-28 (on average), ahead of historical market growth of 0-1%, and consistent with Amcor's target for revenue growth to be +1% above market. Amcor's new capital allocation model has greater emphasis on growth vs. dividends, with c.$2bn+ allocated to acquisitions/buybacks and organic growth (was $1bn), which combined with an annual R&D budget of $0.2bn, provides a stronger platform for EPS growth. Amcor also targets $60mn in growth synergies from Berry, which it has not previously focused on in prior acquisitions. This suggests a more targeted view on extracting revenue synergies, which we think will be generated through cross-selling. Amcor's portfolio is now leveraged to higher growth focus markets (i.e., healthcare, pet food, etc.; c.40% of rev.), which should support above-market volume growth.
