They believe that once uncertainty over the Keurig contract has been resolved and earnings rebased, attention will return to the strength of the underlying business. As new markets continue to deliver strong growth, the sustainability of this growth is supported by increasing but sustainable spend on product development & advertising.
The have modelled retention of the Keurig contract, with a 35% drop in commission partly offset by adjustments to its Canadian cost base.
So despite the short term issues around the Keurig distribution agreement and related earnings, they believe it should trade at a premium to current price given its substantial long term growth potential. Their valuation is further supported by a partly franked dividend yield of 4.6%.
BRG Price at posting:
$5.47 Sentiment: LT Buy Disclosure: Held
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