The S&P/ASX 200 Index (ASX: XJO) share Breville Group Ltd (ASX: BRG) is one of the businesses UBS thinks can deliver double-digit returns over the next year. If Breville does deliver a return of more than 10% over 12 months, I think there's a very high chance it can outperform the ASX 200.
UBS says Breville designs and develops small electrical kitchen appliances. It operates through two divisions, global product and distribution. The global product segment sells premium products that are designed and developed by Breville, sold directly or through third parties.
The distribution segment sells products that are designed and developed by a third party which may be sold under a brand owned by Breville or distributed under a third-party brand, such as Nespresso.
In the FY25 result, the ASX 200 share reported revenue growth of 10.9% to $1.7 billion, gross profit growth of 11.4% to $620.5 million, operating profit (EBIT) rose 10.2% to $204.6 million and net profit after tax (NPAT) increased 14.6% to $135.9 million. This helped it hike its annual dividend per share by 12.1% to 37 cents.
What UBS thought of Breville's FY26 result
The broker said it was a solid report, balanced by earnings uncertainty in FY26.
The EBIT growth of 10% was at the top-end of the guidance. UBS said the second half constant currency sales growth of 9% was "reasonable", though softer than the first half growth rate of 13%, driven by distribution transition impacts in Europe, the Middle East, Africa and Asia Pacific that are expected to be one-off in nature.
The broker noted there was no guidance FY26 guidance but there were indications of cost and capital expenditure headwinds from tariffs and moving production outside China for the 120V (US) products.
UBS decided to reduced its FY26 forecast for Breville's EBIT; instead of delivering no growth (flat), it's now expecting a 2% decline year-over-year, though acknowledged there is a "wide range of potential outcomes" depending on Breville's ability to increase prices, reduce discounts, improve the mix (moving to higher margin retailers) and manage costs.
The broker recently upgraded its rating on Breville shares to a buy, based on the high growth of the coffee machine total addressable market (TAM), the opportunity to scale in new markets like China and the low level of market penetration which should support a more than doubling of sales in 10 years for the ASX 200 share.
What about the tariff situation?
UBS noted that Breville has lifted prices across electric cooking and food prep items since late July, but have not changed prices across the US espresso machines range.
While key competitor De'Longhi has increased prices across their US espresso machines range, this has seemingly not happened for the manual range, which directly competes with Breville's products.
UBS believes Breville is aiming to preserve market share rather than going first on raising prices. However, the broker does think that price rises in coffee are probably required to deliver on UBS' FY26 EBIT expectations of $200 million.
Reflecting on what could happen to the ASX 200 share's gross profit margin in FY27 and FY28 compared to FY25, UBS said:
The market has been debating the extent of structurally lower GMs, but one positive now seems to be the potential for the reverse: GMs could move above current levels by FY27/28 based on the strong ramp expected in Mexico production for 120v US products. By Dec25, BRG has said 80% of its 120v production will be moved out of China (~65% already done), into SEA and to a lesser degree Mexico; however our feedback indicates that by Jun26 the majority should move to Mexico. With Mexico currently tariff exempt for BRG products, the implication here is the blended tariff rate for BRG by FY27/28 will probably be lower than FY25, suggesting 1ppt+ upside risk to our GM forecasts (36.6% FY25, 34.2% FY26, 35.2% FY27, 35.5% FY28).
In other words, Breville can protect itself from tariffs by moving production out of China, initially into South East Asia and then transitioning to Mexico.
Breville share price target
UBS has a price target of $39.80 on the ASX 200 share, implying a possible rise of 13% over the next 12 months. The broker is projecting flat net profit ($135 million) in FY26 and then a steady rise to $245 million by FY30.
