Choosing investments is a complicated process. Proper research is an important tool in the process, whether you're a basic amateur or a seasoned investor.
Understanding your investments allows you to keep a bird’s eye view on your portfolio to make quick decisions on how to react to any changes in its performance. Below is an example of how we would analyse a share’s report (also known as a stock report).
Looking at Breville’s overview: Boiling off the cold brew trend
Breville was founded in Sydney in 1932 as a local Australian brand, specialising in kitchen appliances. Today, it has an immense global presence across 70 countries including the US, Canada, China, South Africa and Israel. The company aims to enhance people’s lives through thoughtful design and brilliant innovation, empowering them to do things in their own kitchen more impressively, or easily, than they thought possible.
Breville announced their underlying FY21 Earnings Before Interest and Tax (EBIT) of $136.4 mil. This figure is up 24.1% year on year (YoY) and in line with the company guidance. The Net Profit After Tax (NPAT) of $91.0 mil, was up 25% from the previous financial year and in line with analysts’ forecasts.
Looking at Breville’s figures
Breville’s figures show a strong revenue growth throughout FY21. The company’s global product segment achieved 37.0% constant currency revenue growth, despite the weakened US dollar during the year.
The regions contributing strongly to the growth were America, up 27.6%, Europe, Middle East and Africa regions up 58.4% and Asia-Pacific regions increasing by 37.4%. We can hypothesise that this growth was stimulated by consumer demand, driven by work-from-home populations, attributable to the COVID-19 pandemic.
Travelling across the world
Despite the pandemic impacts, Breville still saw strong global expansion across the UK, Germany, Austria, Benelux, Switzerland, Spain and France. In the FY21 fourth quarter, Breville also launched in Portugal, Italy and Mexico. Breville’s successful geographic expansion managed to offset the impact of intermittent supply challenges that hampered its competition in FY21.
Noting the company’s hurdles
Although the company’s inventory levels improved from $154m to $217m, a third of this inventory was still “goods in transit”, detrimentally affected by the Suez Canal incident and partial shutdown of the China Yantian port. It’s important to note that many parts of the world are still experiencing spill over effects from these logistical challenges.
Breville itself has also acknowledged other obstacles that include issues with sourcing parts for manufacturing its products and increasing supplier costs.
Looking to the future
With the sales bonanza of FY21, CEO Jim Clayton’s plans of increasing Breville’s annual investment in the growth initiatives of marketing and product development (from 8% to 12%) were successful, and Breville is nearly at the 12% mark. If Breville is able to maintain this ratio and deliver new, innovative products for FY22, it should be able to increase selling price and offset input cost inflation.
With nearly $130m in the war chest, Breville also has the option to continue to fund entry into new markets and entertain possible mergers & acquisitions.
Given supply chain risks and a potential transitional demand outlook, big guns such as Bell Potter and Morgans have lowered growth forecasts. They advise that, although this evidence may present as a positive view on Breville’s long-term growth prospects, they are mindful of the near-term macro risks and thus the valuation.
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