Breville Group Ltd (ASX: BRG) engages in the development, marketing and distribution of small electrical appliances. The company's products are sold in a number of markets, with the principal markets being Australia, New Zealand, North America, and Hong Kong.
Breville's products are mostly traded under the Breville and Kambrook brands. It distributes the Breville brand in North America and the Asia-Pacific region. It is also the exclusive distributor for Philips personal care and garment care appliances in Australia and New Zealand.
Here are ten reasons why I think Breville should be in your portfolio:
1. Revenue trend
Its revenues are positive and growing.
| Amounts in Millions | 2011 | 2012 | 2013 | 2014 |
| Revenue | 393 | 427 | 486 | 541 |
2. Net profits trend
Its net profits are positive and generally growing.
| Amounts in Millions | 2011 | 2012 | 2013 | 2014 |
| Net Profit | 31 | 45 | 49 | 48 |
3. Return on equity (ROE)
Its return on equity has continually been around 20% or above.
| Amounts in Millions | 2011 | 2012 | 2013 | 2014 |
| ROE % | 20 | 27 | 26 | 23 |
4. Debt
It has very little debt compared to its cash.
| Amounts in Millions | 2011 | 2012 | 2013 | 2014 |
| Cash | 27 | 53 | 68 | 70 |
| Debt | >1 | (6) | (11) | (23) |
5. Margins
It has great operating and net profit margins.
| 2011 | 2012 | 2013 | 2014 | |
| Operating Margin % | 11.4 | 11.2 | 11.4 | 12.5 |
| Net Profit Margin % | 8.06 | 11.26 | 10.59 | 9.03 |
6. Cash flow
It has positive free cash flows.
| Amounts in Millions | 2011 | 2012 | 2013 | 2014 |
| Operating cash flow | 46 | 51 | 36 | 51 |
| Capex | 6 | 5 | 9 | 12 |
| Free cash flow | 40 | 46 | 27 | 38 |
7. Earnings per share (EPS)
Its earnings per share have grown and are forecast for growth.
| Amounts in cents | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 |
| Earnings per share | $0.25 | $0.36 | $0.37 | $0.38 | $0.38 | $0.42 |
8. Dividends per share (DPS)
Its dividends are around 4-5% and sustainable based on its free cash flow.
| Amounts in cents | 2011 | 2012 | 2013 | 2014 |
| Dividends per share | $0.17 | $0.24 | $0.26 | $0.27 |
| Dividend Yield % | 5 | 5.48 | 3.64 | 3.97 |
9. Brand competitive advantage
Australia/New Zealand
Breville owns brands that are well known and number one or two in their category. Breville adopts a dual-brand strategy, with Kambrook a low-end product and Breville a mid-range brand with some upper-level products. This enables it to compete across the spectrum of price points.
North America
In North America, the group distributes the Breville range of internally designed and developed premium kitchen products through high end retail channels and its own online retailing platform. Shortly after the end of the 2014 financial year, the group acquired the USA-based culinary division of PolyScience, one of the world's market leaders in premier sous vide cooking products for the commercial sector.
Sous Vide involves a method of preserving food by partial cooking followed by vacuum-sealing and chilling.
UK
In Europe and the United Kingdom, the Breville brand is not owned or operated by the Breville Group. Within Europe, the group has a number of partners who market Breville's premium designed and developed products under their own brands.
In the United Kingdom, the group markets and distributes its premium designed and developed kitchen products under the new company owned brand Sage which is endorsed by Heston Blumenthal. The internationally acclaimed chef, Heston Blumenthal, in addition to endorsing the Sage brand is also Breville's global brand ambassador
10. New CEO
The recent appointment of Jim Clayton as the new chief executive officer is a good move given his extensive experience in the areas of consumer products, technology and innovation.
Mr Clayton was vice president of LG's new business division in home entertainment. He oversaw the company's entry into new markets and, given Breville's focus on international expansion and current spread of businesses across Australia and New Zealand, North America and rest of world, Mr Clayton's appointment will be a good fit.
Verdict
There's a lot to like about Breville. Any company that can maintain a high return on equity, while having little or no debt is great news for Buffett style investors. Breville is expected to report its full years results around August 28, and even if its revenue/earnings are down a little, it's worth 'cutting them some slack' until the new CEO can start to have an impact.
