Pinned straw:
Kitchen appliance maker announced their 1H25 results today.
The Summary and Their Highlights
- Solid revenue growth of 10.1% against a backdrop of resilient consumer demand
- 13.0% Global Product segment revenue growth (constant currency)
- Double-digit revenue growth in all three Theatres (Global Product segment constant currency) led by strong Coffee category growth
- Group Gross Margin held steady at 36.7% of revenue with 10.3% Gross Profit growth
- EBIT growth of 10.5% with 1H25 operating expense growth aligned to Gross Profit growth
- NPAT growth of 16.1% with lower interest costs arising from strong FY24 cashflow generation
- Net Debt of $55.1m, an improvement on pcp balance of $97.5m
- Strong underlying cash generation partially offset by tactical pull forward of 2H25 US inventory as a hedge against potential tariffs
- Interim Dividend of 18.0 cents per share (100% franked)
My Notes from the Investor Call
This was another very solid performance from $BRG with a clear and almost monotonously solid double act from CFO Martin Nicholas and CEO Jim Clayton.
In constant currency, all theatres performed well in the major Global Product segment, pleasing to see AMEA and APAC posting strong cc revenues growths, with the sluggish consumer demand in established markets being offset by the new markets.
US sales were strong, allowing Americas to post double-digit growth, even given the failure of a retail partner in Canada which was a tailwind in that market.
$BRG has sought to anticipate China tariffs by pre-loading 2025 inventory into the US. (Easy to do, as they can just keep their manufacturers running at the pre-Xmas build up levels for a few extra weeks.) This large inventory has hit free-cashflow, but makes perfect sense as it protects the FY25 result from any tariff impact, unless sales outperform and additional replenishment is required.
On supply chain, about 40% of revenue is exposed to the China-US “pair”, but Jim sees this exposure falling to 10% by 1 Jan 2026. He emphasises that their preparations here have been three years in the making, following their decision post-pandemic to diversify their supply chain. It was not an anticipation of Trump, but it highlights the importance of setting up resilient supply chains for all unknown unknowns!
Gross Margin was bang on PCP at 36.7%, and expense growth matched revenue growth leading to EBIT growth of 10.5%.
The relatively strong NPAT growth of 16.1% was enabled by reduced interest charges on lower debt, as $BRG heads to a conservative balance sheet with Net Debt at 0.2 x EBITDA and a net cash position. There is now ample balance sheet capacity for further expansion (organic and inorganic) as well as capital management.
There was some significant Q&A discussion on the apparently very soft and comparatively wide FY25 EBIT guidance range of 5-10% growth. Jim explained that this locks in the impact of the 10% Trump China Tariffs, and provides some capacity for “knowns unknowns”. He wouldn’t be drawn to discuss what he thinks will happen, preferring to answer with “imagine I was in the steel industry” and explaining how in one week any assumptions in that industry have been torn up.
Jim and Martin both explained all the levers they have to manage the impact of tariffs, with Jim saying that it is important for him to take the right tactical decisions that will impact company performance over two years, without impacting the strategic direction of the firm that plays out over 15 years.
As always, Jim picks several strategic topics to focus his presentation on. This time there were three:
· Beanz Service Update
· Geographic Expansion
· New Products
Beanz is a global coffee as a service model, now active in 4 countries. Its basically a platform enabled via machine sales, where $BRG allows customers to purchase beans direct from leading roasters. The technology platform is global, and can be turned on in each market when the partnership ecosystem is in place. Jim discouraged the analysts from building it into their models, but did indicate that over time, he believes it can become material. (Maybe I’ll try it out as it operates in Australia.
Geographic expansion is focused on Arabian markets and moving to a direct model in China, which will be predominantly online, as this is how most sales in that market currently occur. Jim explained that the geographic expansion has increase $BRG’s addressable market by 35% over that presented at the Macquarie Conference last year. “Many years of work to do!”
New products are focussing heavily on coffee, which remains the leading category, including fully automated machines, and accessories which can be used with all machines.
My Key Takeaways and Valuation
While a good result, $BRG is very fully valued (as are may high quality businesses at the moment.)
Thus today's SP response, -2% at time of writing is not a surprise.
I still have a small RL holding, having sold most of position 6 months ago around $34-35. I need to update my SM valuation which is currently out of date at $26. While I won't do a full valuation update until after the FY result (too many more pressing priorities), a midpoint of around $32 is probably closer to the mark.
I - as well as most analysts - are less bullish than the market (see below), so I need to take some time and better understand why.
Any future wobbles on tariffs might hit $BRG SP, which is partly off its recent highs as a result, and I will be patient and poised to move back in to this core holding, should the opportunity arise.
Disc: Held in RL only
I’ve never owned Breville, but as a regular coffee bean buyer, I thought I’d check out Beanz after seeing it mentioned here. I use an expensive espresso machine daily, and live in regional Vic, where in the past good coffee was hard to come by.
My perspective:
- I’ve tried up to five of the brands listed on Beanz before, and they’re all excellent quality. However, I currently buy my beans from Aldi. They’re fresh (thanks to high turnover) and very affordable.
- I am also aware that one of the brands on Beanz is also the supplier for Aldi. While the beans they use for Aldi aren’t top tier, the quality is impressive for the price.
- In a taste test we did at home (yes, we’re coffee nerds), the expensive beans were better. But here’s the kicker: a 1kg bag from Beanz or directly from a roaster costs around $65, while Aldi’s equivalent is $14–16. Is the coffee four times better? Definitely not—otherwise, I’d be buying the expensive beans.
- I’ve also found that regularly cleaning your machine has the biggest impact on coffee quality, so even great beans are mediocre if your machine is dirty.
- I also never buy beans from Woolies or Coles because they are subpar quality and often not fresh due to slow turnover.
- Occasionally, I’ll splurge on more expensive beans when hosting guests or just for a change but that’s rare, so I’m not a Beanz customer.
I think coffee snobs will always gravitate towards premium brands, but I am unsure why you would purchase from Beanz when you can buy direct from roasters. I cross checked a couple of brands they were cheaper and also offered subscription services. The only advantage I can see Beanz has is the variety of brands available in one spot.
@mikebrisy thanks for that summary, i am one of the TPG victims, so no Internet until now. This result was very good, better than my expectations, although i was thinking of a slow year here and a faster one next, so it all washes out in the valuation, not much change. i am a bit concerned about the amount of "management" that goes into almost every result, maybe its JC big-noting himself, but there appears some operational or market issue at every result. it is a tough business and GM is not that high. i get the feeling that there may be a better risk/return proposition, especially at this SP. having said that, almost all of my top 10 are struggling with valuation, not surprising given two years of strong markets. i do not want to wander down the risk spectrum, even though we could get a risk blowoff to the upside in the next period, who knows? but sticking with quality is your best defence.
my value is high $20s but we are in the relative market now, there is not much out there absolutely cheap, without sacrificing quality and therefore adding risk.
i don't pay attention to broker PTs.