We recently researched Breville Group (ASX:BRG) in The Dynamic Investor after the Company reported better-than-expected interim results. Our conclusion was that it was best to remain on the sidelines, given an unappealing trading multiple and risks to the expected recovery in margin over the short term.
With the shares having de-rated further since our recent report, we assess whether current levels present a more attractive entry opportunity.
About Breville Group
Breville Group manages of a number of consumer electrical appliance brands. The Company’s core focus is on the small kitchen appliances segment. The operations of BRG now comprises two segments:
i. The ‘Global Product’ segment – focused on the design, development and sale of Breville-branded products supplied in 65 countries to the premium kitchen segment of the market. This segment accounts for 80% of group revenue and comprises contributions from three regions: Americas, Asia Pacific (APAC) and Europe Middle East and Africa (EMEA). The America region is the largest region for global product, accounting for ~50% of sales.
ii. The ‘Distribution’ segment, which distributes products that are designed or developed by a 3rd party pursuant to a license or distribution agreement.
Key Fundamental Drivers
Margin outlook Remains Mixed
We consider that there is upside risk to Gross Profit Margin (GPM) in FY27 due to:
- The shift for a full 12-month benefit from the shift in production to lower US tariff countries.
- The recent weakness in the US$ (as measured by the US Dollar Index) is a net benefit to BRG. This is because the headline revenue impact is more than offset by US$ Cost of Goods Sold (COGS) as hedging rolls-off.
To balance the argument, we note the potential risk to GPM from logistical disruptions arising out of the Middle East conflict This is given that BRG primarily uses sea freight. In addition, the Company recently increased its exposure to the Middle East when it evolved to a direct market, from a distributor-led market. As the Middle East was identified as one of BRG’s fastest growing regions in the recent 1H26 results, some disruption is expected in 2H26. To offset these challenges, the Company may reduce advertising and R&D spend.
Over the medium-to-longer term, GPM is expected to trend higher via: i) Increasing coffee mix (currently ~50-60% of sales) and premiumisation, and ii) AI adoption (which would support Cost of Doing Business (CODB) management.
Are Tariffs Still a Risk to Margin?
The key highlight from the 1H26 result was that the Company successfully managed material tariff-related margin. While GPM contracted 130 basis points (bps) year-on-year to 35.4% (from 36.7% in 1H25), the extent of the impact on GPM from US tariffs was lower than expected. risks. This was due to strong retail execution, New Product Development (NPD) and the ramp-up of new markets and new businesses.
A US Supreme Court ruling in mid-February invalidated many of the tariffs imposed by the Trump administration. While it is unlikely that the tariff uncertainty ends here, the US Supreme Court’s ruling should be positive for investor sentiment towards BRG and ultimately for BRG’s margins if tariffs are removed.
BRG has already moved a substantial portion of its US-bound production to low-tariff jurisdictions (in particular Mexico) in order to leverage USMCA tariff exemptions. To this end, a key near-term risk is the renewal of the US-Mexico-Canada Agreement (USMCA) in July 2026. Mexico is currently tariff exempt for BRG products under the current USMCA rules. A failure to renew the agreement or a “contentious renegotiation” could strip away these exemptions. This exposes BRG to high tariffs (potentially 25% or more) on goods currently entering the US duty-free from Mexico.
Net Cash Balance Sheet Position to Fund Internal Initiatives
Strong operating cashflow enabled a reduction in the net debt position as at 31 December 2025, which fell to $43.6m. This compared to $55.1m in the prior corresponding period. The collection of peak receivables during early weeks of 2H26 has enabled a net cash position of $70.1m as at 31 January 2026.
Working capital was well managed, with inventory levels flat. This is as a result of a lower unit holding in US offsetting higher-value inventories arising from tariff increases.
BRG has unused debt facilities of $221.6m and cash of $176.8m, which provide flexibility for several internal initiatives. These include continued investment in manufacturing assets, store-in-store expansion and normal seasonal inventory build.
Fundamental View
BRG’s longer-term fundamental appeal is underpinned: i) Exposure to structural growth of the coffee machine category, ii) The opportunity to scale new markets (in particular China), and iii) Scope to continue winning market share through NPD.
The shares are currently trading on a 1-year forward P/E multiple of ~25x is below the 5-year average is ~30x. While the shares have continued to de-rate since our recent report, we consider the risk-reward remains unfavourable. The current multiple still appears unattractive in the context of an EPS growth profile of ~9.5% over FY25-28 on a CAGR basis. Further, while the Company has largely navigated its manufacturing transition, potential changes to the USMCA present a risk to the expected recovery in GPM.
One factor that may support the shares at current levels is that short interest in the stock is elevated (8.5% currently, up from 7.4% at the start of the year).
Charting View
We looked at the BRG chart on 17 March in The Dynamic Investor. Here we noted that “investors can be a little more patient and look for levels closer to $25.” With the stock now bouncing from that level, we may now see it trade sideways to establish more of a base.