Breville Group (BRG) | Accelerating sales growth; capital restructure
In a nutshell: Breville Group’s (BRG) trading update highlighted a significant acceleration in sales growth in 2H20. Sales have increased 32% in 2H20 (to date), despite the interruption of key retailer store closures. Breville also announced a change in its capital structure through the following: 1) an equity capital raising of up to $104m; and 2) the refinancing of its existing debt facilities. The change in capital structure allows Breville to continue to execute its aggressive growth strategy and provides it with a financial cushioning should trading deteriorate.
Trading update: BRG delivered 32% revenue growth for the period 1 January to 30 April 2020, an acceleration on the 25.3% sales growth achieved in 1H20. The rate of growth was well above the 14.4% sales growth we had assumed for 2H20. Growth was strong in both March and April, with sales up 25% and 21% respectively. Global Product sales increased 32% (versus our 2H20 forecast of 13.5%), or 24% in constant currency terms. Sales in Australia and the UK have been particularly strong, while sales have been somewhat weaker in the US and Europe. Distribution segment sales increased 29.7% in 2H20, well above our forecast of 18.0%. BRG indicated its gross profit margin in 2H20 was consistent with 1H20.
Equity raising: BRG announced a $104m equity raising, comprising of a $94m institutional placement and a $10m underwritten SPP. The equity raising will result in 6.1m shares issued – 4.7% of Breville’s shares on issue. The placement is at $17.00, a 9.1% discount to the closing price of $18.70. BRG was in a net cash position at the time of the raising (30 April 2020) with net cash of $10m (cash on hand of $74m). BRG also announced a refinancing of $373m of its existing $385m debt facility, lengthening its tenor to three years. BRG maintains access to total debt facilities of $385m.
Investment view: We maintain a BUY rating. BRG is part way through a major business transformation. A key plank of its strategy is moving from third-party distribution to a direct-to-market model, and subsequent geographic expansion. Given the potential for strong growth over the medium term, we upgrade FY20/FY21/FY22 EPS by 7%/5.7%/5.3% respectively. We increase our price target to $22.50, from 19.00. Click here to read full report