Breville Group: Model update following acquisition of LELIT
About the author:
- Author name:
- By Alexander Mees
- Job title:
- Co-Head of Research and Senior Analyst
- Date posted:
- 15 March 2022, 12:00 PM
- Sectors Covered:
- Gaming and Retail
- We have updated our earnings estimates following the announcement of the €113m acquisition of the Italian coffee systems business LELIT, which is due to complete in July 2022.
- We have also updated our FX assumptions following the recent strengthening of the Australian dollar against key global currencies, which is negative for BRG on translation.
- Our EBIT estimates decline by 0.5% in FY22 and increase by 0.1% in FY23. We retain an ADD rating and (login to view) target price.
BRG has announced the acquisition of LELIT for €113m (A$170m), funded 50% in cash and 50% in new shares issued at $27.64. We have updated our model to include the acquisition and recent FX movements.
LELIT is a designer and manufacturer of premium home coffee equipment in Europe and throughout the world. The company is rapidly growing in the premium Italian-made espresso machine and grinder market. LELIT was founded in 1985.
Its original business was the design and manufacture of ironing systems. Ironing systems continue to be part of LELIT’s activities, but we estimate they contribute only around 5% of sales and are EBIT positive.
BRG has not disclosed the financial performance of LELIT, but we have assumed a 4x revenue multiple and current EBIT margins that are below that of BRG’s Global Products division.
In our opinion, the acquisition is consistent with BRG’s strategic objective of adding a premium Italian espresso brand to its stable. There are opportunities for BRG to leverage its technology into the LELIT brand and for it to extract learnings from LELIT into its heritage brands.
Forecast and valuation update
The inclusion of LELIT from July 2022 increases our FY23F EBIT estimate by 2% and has no effect on FY22F EBIT. We have updated our FX assumptions to current spot rates, which reduces FY22F EBIT by 1% and FY23F EBIT by 2%.
The dilutive effect of the new shares to be issued in part-consideration for LELIT increases the weighted average number of shares in FY23 by 2% and so reduces our FY23F EPS estimate by 2%.
Our target price remains (login to view).
In our opinion, BRG deserves to trade at a premium multiple. It is positioned to deliver double-digit sales growth consistently over the next few years as it grows its market share, notably in geographies into which it has recently launched. Our rating remains ADD.
The greatest risk to our investment view is that sales growth may not eventuate as we expect.
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