In a nutshell: An absolute meshugah result. And not just merely...

In a nutshell:

An absolute meshugah result.

And not just merely because of Covid-related tailwinds; this is simply a case of more of the same since the accelerated global growth strategy was put in place around 5 years ago.

Well, more of the same, but at an accelerating pace:




While Group sales are up 29% in A$ terms on pcp, on a constant currency basis Group Product sales (84% of total Group sales...Distribution - which grew at "only" 7% - makes up the rest) was up a whopping 39% (!)

As for Operating Profit, which was up 30% on pcp,  well, let's say that they couldn't have possibly crammed more costs into the result in order to keep it from looking really silly.

With a 47% increase in Advertising expenses (25% of CoDB) a 39% increase in Other expenses (20% of CoDB, and in the current half included expenses related to the $82m acquisition of Baratza which, incidentally, had little impact on the earnings in the half, so there's that to consider for upcoming results), and an $8.5m provision for B&DD's (a huge number in the context of some $95m of EBIT), there are clearly hollow logs galore.

An argument could very easily be made that underlying EBIT (i.e., if one excludes everything but the kitchen sink which they threw at the Opex line) was actually something like 50% higher.

Somewhat of an embarrassment of riches.

Presciently, they reduced the payout ratio.
The reason - "to fund more growth"

I have little reason to think that the circle representing Group Product sales will in 4 years't time not look, proportionally compared to today's circle, no different to the proportional size of today's circle verses 4 years prior:




Global Product Sales increased by a factor of 2.25 times over the 4 years between DH2016 and DH2020

Even if they managed to increase it by a factor of 1.75 (so a "mere" 15%pa CAGR) over the coming 4 years, it will mean around $1.95bn pa in Product Sales by FY2025, plus maybe $250m in Distribution revenue (current Distribution revenue run-rate is around $200mpa, so no hairy-knuckled assumptions being applied to get to $250m), for Total Breville Group Revenue of around $2.2bn in Fy2025

At a Gross Profit Margin of 35%, that means Gross Profit of  $750m.

Assuming - somewhat generously - that CoDB rises by 50% over the next 4 years, which would take it to around $300m.

And EBIT would be around $450m

It is when one kicks around that sort of (perfectly realistic) scenario, that Breville's current Enterprise Value of $3.8bn no longer sounds that demanding.

.