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Is Breville good value after its recent results?

Breville (ASX:BRG) the kitchen appliance company this week reported another record for half-yearly sales, albeit slightly below consensus. First half 2023…



Breville (ASX:BRG) the kitchen appliance company this week reported another record for half-yearly sales, albeit slightly below consensus. First half 2023 revenue grew 1.1 per cent to A$888.0 million, which was also 0.7 per cent higher, on a constant currency basis, than the first half of FY22.

Breaking the sale revenue result down geographically, The Americas were up 11.9 per cent (well above market rates of growth which we highlight below), Europe, Middle East, and Africa (EMEA) were down 19.6 per cent, and Asia Pacific (APAC) was virtually flat, at up 0.4 per cent. 

Underlying EBIT of $121.1 million beat consensus and was 7.6 per cent higher than for the first half of 2022. The company’s EBIT margin also beat the prior corresponding period, coming in at 13.6 per cent versus 12.8 per cent. Net profit after tax of $78.7 million was 1.3 per cent higher than the prior corresponding period.

As we also noted in JB Hi-Fi and Nick Scali’s releases, gross margins for Breville have improved to 37 per cent versus 36.3 per cent for the six months ended December 31, 2021. But there was important information in the detail.  The company was able to put through price increases which helped to offset adverse currency movements and higher freight costs.

Some analysts might see this is a negative – had the company not been able to pass through price increases, its gross margins would have suffered. But the ability to pass on price increases is arguably the most valuable competitive advantage. And freight costs are now declining, and currencies, particularly the US Dollar, are moving favourably (downwards) against Breville’s main trading currencies.

Noting the company will release working capital in the second half of 2023, and assuming relative stability in the economies in which it operates, Breville expects full-year EBIT to be between $165 million – $172 million, which compares to the current consensus of about $170 million.

Regarding regional trading updates, the results did not highlight any major changes from the picture offered at the AGM last year; Trading in America remains strong, APAC is still steady, and Europe remains weak. 

Analyst concerns

For some analysts, the fact consumers are moderating their spending in Australia, and the U.S. while Europe’s economy continues to splutter predicts a challenging period ahead. Their view is that declining volumes may more than offset the strength in margins from recent price increases and new product launches. 

Analysts also point to the increase in net debt – from a net cash position in the prior corresponding half of $32 million to a net debt position of $212 million (due primarily to inventory investment and the acquisition of Italian specialty coffee group Lelit) – combined with rising interest rates, as increasing risk and earnings per share. 

Elsewhere, inventory also grew by more than analysts expected from $293 million in the half-year ending December 21, to $465.2 million in the most recent half.

Breville explains that obsolescence risk is “negligible” for their products, so the company holds incremental inventory as a “hedge against supply chain uncertainties and ongoing demand fluctuations”. Each year Breville lands inventory to support the maximum forecast sales for the peak season. They subsequently adjust purchases in the second half to bring each product back to equilibrium. While the company noted, “With supply chain uncertainties now abating, we are transitioning back to our normal inventory flow model, which should see reduced inventory”, another reading might say they’ve overstocked. The company noted it is not expecting a repeat of the build.

Of the $172 million increase in inventory, the company noted $66 million was due to the ‘planning approach’ referenced above, $106 million support future revenue growth streams, $73 million relates to the addition of Lelit – as well as new geographies (Mexico and South Korea) – and $33 million relates to inventory held for new product launches.

Finally, the company’s ROE has dropped as a consequence of its acquisition of Lelit and the associated capital raising of $56 million. On a consecutive rolling 12-month basis, ROE has fallen to 16.1 per cent, from 19.7 per cent for the 12 months ended December 31, 2021. 

The positives

Breville is a company with several sources of growth and the potential for a rerating. First, and perhaps most obviously, is geographic expansion, including but not limited to South Korea and Mexico. 

Secondly, during the COVID pandemic the company continued to research and develop new products but were unable to release them. The company refers to this indirectly in its comments about inventory.  The resultant pipeline of new products could mean an acceleration in product releases and consequent sales in coming periods. 

Finally, the U.S. market. The America’s represented 58 per cent of the company’s revenue in the most recent half and grew 11.9 per cent.  In constant currency terms, the Americas revenue has grown by 16 per cent per annum over the last six years.  We currently expect strong growth to continue for two reasons.  The first is the massive shift – thanks to cooking shows on Netflix – from brewed coffee to real coffee.  The U.S. is an immature market when it comes to real coffee and George Clooney has played no small part in alerting Americans to their unsophisticated coffee preferences. 

According to the U.S. National Coffee Association, coffee consumption soared to a two-decade high last year, and 66 per cent of Americans now drink coffee daily. This is more than any other beverage, including tap water and is up by nearly 14 per cent since January 2021. 

More importantly, specialty coffee consumption hit a five-year high with 43 per cent of coffee drinkers choosing specialty coffee in the past day, up 20 per cent since January 2021.

But most importantly, the National Coffee Association noted, 41 per cent of coffee drinkers use a drip coffee maker (Arghhh!). Only eight per cent use an espresso machine, suggesting there is a very long runway of growth ahead for Breville.

In addition to the long runway of growth for Breville’s coffee business, U.S. demand for Breville’s air fryers and smart ovens is exploding thanks to the trend for healthier eating and chef-guided cooking at home, respectively.

The premiumisation of home cooking and coffee making means Breville’s products can be priced acceptably, if not affordably, for the affluent consumer.  These consumers are less sensitive to interest rates and economic conditions. Meanwhile, Breville doesn’t require external capital to continue deepening and lengthening its pipeline of new products, a source of continuing double-digit EBIT growth.

Is Breville good value?

Breville’s share price rallied almost 160 per cent during the Covid-19 pandemic as investors jumped on the work-from-home and create-the-perfect-bunker themes.  As economies reopened, however, those share gains unwound, reinforcing Breville’s apparent status as a COVID-19 beneficiary. Investors will need some time to accept they might have this company wrong.

Breville is more than a Covid beneficiary.  And Breville is not a retailer.  It owns brands and IP, and manufacturers superior and desirable products that are sold to retailers at pre-defined margins.  Its major market is growing at double-digit rates and the runway for growth is long.  Meanwhile, Breville’s customers are less economically sensitive.  It is arguable Breville should be on a higher than retailer PE ratio.

Assuming a discount rate of eight per cent, a sustainable return on equity (ROE) of 17.5 per cent, end-of-year shareholder’s equity of $760m, a payout ratio of 38 per cent, and 143 million shares on issue, we obtain a valuation of $20.20. The shares currently trade just above $20 but that’s on a retailer-type P/E multiple.

The Montgomery Small Companies Fund own shares in Breville. This article was prepared 16 February 2023 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Breville you should seek financial advice

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As We Sell Off Our Strategic Oil Reserves, Ponder This

As We Sell Off Our Strategic Oil Reserves, Ponder This

Authored by Bruce Wilds via Advancing Time blog,

One of Biden’s answers to combating…



As We Sell Off Our Strategic Oil Reserves, Ponder This

Authored by Bruce Wilds via Advancing Time blog,

One of Biden's answers to combating higher gas prices has been to tap into America's oil reserves. While I was never a fan of the U.S. Strategic Petroleum Reserve (SPR) program, it does have a place in our toolbox of weapons. We can use the reserve to keep the country running if outside oil supplies are cut off. Still, considering how out of touch with reality Washington has become, we can only imagine the insane types of services it would deem essential next time an oil shortage occurs.

Sadly, some of these reserves found their way into the export market and ended up in China. We now have proof that the President's son Hunter had a Chinese Communist Party member as his assistant while dealing with the Chinese. Apparently, he played a role in the shipping of American natural gas to China in 2017. It seems the Biden family was promising business associates that they would be rewarded once Biden became president. Biden's actions could be viewed as those of a traitor or at least disqualify him from being President.

The following information was contained in a letter from House Oversight Committee ranking member James Comer, R-Ky. to Treasury Secretary Janet Yellen dated Sept. 20. 

"The President has not only misled the American public about his past foreign business transactions, but he also failed to disclose that he played a critical role in arranging a business deal to sell American natural resources to the Chinese while planning to run for President.”

Joe Biden, Comer said, was a business partner in the arrangement and had office space to work on the deal, and a firm he managed received millions from his Chinese partners ahead of the anticipated venture. While part of what Comer stated had previously been reported in the news, the letter, cited whistleblower testimonies, as well as emails, a corporate PowerPoint presentation, and a screenshot of encrypted messages. These as well as  bank documents that committee Republicans obtained suggest Biden’s knowledge and involvement in the plan dated back to at least 2017.

The big point here is;

  • The Strategic Petroleum Reserve, which was established in 1975 due to the 1973 oil embargo, is now at its lowest level since December 1983.

In December 1975, with memories of gas lines fresh on the minds of Americans following the 1973 OPEC oil embargo, Congress established the Strategic Petroleum Reserve (SPR). It was designed “to reduce the impact of severe energy supply interruptions.” What are the implications of depleting the SPR and is it still important?

The U.S. government began to fill the reserve and it hit its high point in 2010 at around 726.6 million barrels. Since December 1984, this is the first time the level has been lower than 450 million barrels. Draining the SPR has been a powerful tool for the administration in its effort to tame the price of gasoline. It also signaled a "new era" of intervention on the part of the White House. 

This brings front-and-center questions concerning the motivation of those behind this action. One of the implications of Biden's war on high oil prices is that it has short-circuited the fossil investment/supply development process.  Capital expenditures among the five largest oil and gas companies have fallen as the price of oil has come under fire. The current under-investment in this sector is one of the reasons oil prices are likely to take a big jump in a few years. Production from existing wells is expected to rapidly fall.

The Supply Of Oil Is Far More Constant And Inelastic Than Demand

It is important to remember when it comes to oil, the supply is far more constant and inelastic than the demand. This means that it takes time and investment to bring new wells online while demand can rapidly change. This happened during the pandemic when countries locked down and told their populations and told them to stay at home. This resulted in the price of oil temporarily going negative because there was nowhere to store it.

Draining oil from the strategic reserve is a short-sighted and dangerous choice that will impact America's energy security at times of global uncertainty. In an effort to halt inflationary forces, Biden released a huge amount of crude oil from the SPR to artificially suppress fuel prices ahead of the midterm elections. 

To date, Biden has dumped more SPR on the market than all previous presidents combined reducing the reserves to levels not seen since the early 1980s. In spite of how I feel about the inefficiencies of this program, it does serve a vital role. It is difficult to underestimate the importance of a country's ability to rapidly increase its domestic flow of oil. This defensive action protects its economy and adds to its resilience. 

Biden's actions have put the whole country at risk. Critics of his policy pointed out the Strategic Petroleum Reserve was designed for use in an emergency not as a tool to manipulate elections. Another one of Biden's goals may be to bring about higher oil prices to reduce its use and accelerate the use of high-cost green energy.

Either way, Biden's war on oil has not made America's energy policies more efficient or the country stronger.

Tyler Durden Sat, 03/25/2023 - 18:30

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The Disinformation-Industrial Complex Vs Domestic Terror

The Disinformation-Industrial Complex Vs Domestic Terror

Authored by Ben Weingarten via,

Combating disinformation…



The Disinformation-Industrial Complex Vs Domestic Terror

Authored by Ben Weingarten via,

Combating disinformation has been elevated to a national security imperative under the Biden administration, as codified in its first-of-its-kind National Strategy for Countering Domestic Terrorism, published in June 2021.  

That document calls for confronting long-term contributors to domestic terrorism.

In connection therewith, it cites as a key priority “addressing the extreme polarization, fueled by a crisis of disinformation and misinformation often channeled through social media platforms, which can tear Americans apart and lead some to violence.” 

Media literacy specifically is seen as integral to this effort. The strategy adds that: “the Department of Homeland Security and others are either currently funding and implementing or planning evidence–based digital programming, including enhancing media literacy and critical thinking skills, as a mechanism for strengthening user resilience to disinformation and misinformation online for domestic audiences.” 

Previously, the Senate Intelligence Committee suggested, in its report on “Russian Active Measures Campaigns and Interference in the 2016 Election” that a “public initiative—propelled by Federal funding but led in large part by state and local education institutions—focused on building media literacy from an early age would help build long-term resilience to foreign manipulation of our democracy.” 

In June 2022, Democrat Senator Amy Klobuchar introduced the Digital Citizenship and Media Literacy Act, which – citing the Senate Intelligence Committee’s report – would fund a media literacy grant program for state and local education agencies, among other entities. 

NAMLE and Media Literacy Now, both recipients of State Department largesse, endorsed the bill. 

Acknowledging explicitly the link between this federal counter-disinformation push, and the media literacy education push, Media Literacy Now wrote in its latest annual report that ... 

... the federal government is paying greater attention to the national security consequences of media illiteracy.

The Department of Homeland Security is offering grants to organizations to improve media literacy education in communities across the country. Meanwhile, the Department of Defense is incorporating media literacy into standard troop training, and the State Department is funding media literacy efforts abroad.

These trends are important for advocates to be aware of as potential sources of funding as well as for supporting arguments around integrating media literacy into K-12 classrooms. 

When presented with notable examples of narratives corporate media promoted around Trump-Russia collusion, and COVID-19, to justify this counter-disinformation campaign, Media Literacy Now president Erin McNeill said: “These examples are disappointing.”

The antidote, in her view is, “media literacy education because it helps people not only recognize the bias in their news sources and seek out other sources, but also to demand and support better-quality journalism.” (Emphasis McNeill’s)

Tyler Durden Sat, 03/25/2023 - 17:30

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G7 Vs BRICS – Off To The Races

G7 Vs BRICS – Off To The Races

Authored by Scott Ritter via,

An economist digging below the surface of an IMF report has…



G7 Vs BRICS - Off To The Races

Authored by Scott Ritter via,

An economist digging below the surface of an IMF report has found something that should shock the Western bloc out of any false confidence in its unsurpassed global economic clout...

G7 leaders meeting on June 28, 2022, at Schloss Elmau in Krün, Germany. (White House/Adam Schultz)

Last summer, the Group of 7 (G7), a self-anointed forum of nations that view themselves as the most influential economies in the world, gathered at Schloss Elmau, near Garmisch-Partenkirchen, Germany, to hold their annual meeting. Their focus was punishing Russia through additional sanctions, further arming of Ukraine and the containment of China.

At the same time, China hosted, through video conference, a gathering of the BRICS economic forum. Comprised of Brazil, Russia, India, China and South Africa, this collection of nations relegated to the status of so-called developing economies focused on strengthening economic bonds, international economic development and how to address what they collectively deemed the counter-productive policies of the G7.

In early 2020, Russian Deputy Foreign Minister Sergei Ryabkov had predicted that, based upon purchasing power parity, or PPP, calculations projected by the International Monetary Fund, BRICS would overtake the G7 sometime later that year in terms of percentage of the global total.

(A nation’s gross domestic product at purchasing power parity, or PPP, exchange rates is the sum value of all goods and services produced in the country valued at prices prevailing in the United States and is a more accurate reflection of comparative economic strength than simple GDP calculations.)

Then the pandemic hit and the global economic reset that followed made the IMF projections moot. The world became singularly focused on recovering from the pandemic and, later, managing the fallout from the West’s massive sanctioning of Russia following that nation’s invasion of Ukraine in February 2022.

The G7 failed to heed the economic challenge from BRICS, and instead focused on solidifying its defense of the “rules based international order” that had become the mantra of the administration of U.S. President Joe Biden.


Since the Russian invasion of Ukraine, an ideological divide that has gripped the world, with one side (led by the G7) condemning the invasion and seeking to punish Russia economically, and the other (led by BRICS) taking a more nuanced stance by neither supporting the Russian action nor joining in on the sanctions. This has created a intellectual vacuum when it comes to assessing the true state of play in global economic affairs.

U.S. President Joe Biden in virtual call with G7 leaders and Ukrainian President Volodymyr Zelenskyy, Feb. 24. (White House/Adam Schultz)

It is now widely accepted that the U.S. and its G7 partners miscalculated both the impact sanctions would have on the Russian economy, as well as the blowback that would hit the West.

Angus King, the Independent senator from Maine, recently observed that he remembers

“when this started a year ago, all the talk was the sanctions are going to cripple Russia. They’re going to be just out of business and riots in the street absolutely hasn’t worked …[w]ere they the wrong sanctions? Were they not applied well? Did we underestimate the Russian capacity to circumvent them? Why have the sanctions regime not played a bigger part in this conflict?”

It should be noted that the IMF calculated that the Russian economy, as a result of these sanctions, would contract by at least 8 percent. The real number was 2 percent and the Russian economy — despite sanctions — is expected to grow in 2023 and beyond.

This kind of miscalculation has permeated Western thinking about the global economy and the respective roles played by the G7 and BRICS. In October 2022, the IMF published its annual World Economic Outlook (WEO), with a focus on traditional GDP calculations. Mainstream economic analysts, accordingly, were comforted that — despite the political challenge put forward by BRICS in the summer of 2022 — the IMF was calculating that the G7 still held strong as the leading global economic bloc.

In January 2023 the IMF published an update to the October 2022 WEO,  reinforcing the strong position of the G7.  According to Pierre-Olivier Gourinchas, the IMF’s chief economist, the “balance of risks to the outlook remains tilted to the downside but is less skewed toward adverse outcomes than in the October WEO.”

This positive hint prevented mainstream Western economic analysts from digging deeper into the data contained in the update. I can personally attest to the reluctance of conservative editors trying to draw current relevance from “old data.”

Fortunately, there are other economic analysts, such as Richard Dias of Acorn Macro Consulting, a self-described “boutique macroeconomic research firm employing a top-down approach to the analysis of the global economy and financial markets.”

Rather than accept the IMF’s rosy outlook as gospel, Dias did what analysts are supposed to do — dig through the data and extract relevant conclusions.

After rooting through the IMF’s World Economic Outlook Data Base, Dias conducted a comparative analysis of the percentage of global GDP adjusted for PPP between the G7 and BRICS, and made a surprising discovery: BRICS had surpassed the G7.

This was not a projection, but rather a statement of accomplished fact:

BRICS was responsible for 31.5 percent of the PPP-adjusted global GDP, while the G7 provided 30.7 percent.

Making matters worse for the G7, the trends projected showed that the gap between the two economic blocs would only widen going forward.

The reasons for this accelerated accumulation of global economic clout on the part of BRICS can be linked to three primary factors:

  • residual fallout from the Covid-19 pandemic,

  • blowback from the sanctioning of Russia by the G7 nations in the aftermath of the Russian invasion of Ukraine and a growing resentment among the developing economies of the world to G7 economic policies and

  • priorities which are perceived as being rooted more in post-colonial arrogance than a genuine desire to assist in helping nations grow their own economic potential. 

Growth Disparities

It is true that BRICS and G7 economic clout is heavily influenced by the economies of China and the U.S., respectively. But one cannot discount the relative economic trajectories of the other member states of these economic forums. While the economic outlook for most of the BRICS countries points to strong growth in the coming years, the G7 nations, in a large part because of the self-inflicted wound that is the current sanctioning of Russia, are seeing slow growth or, in the case of the U.K., negative growth, with little prospect of reversing this trend.

Moreover, while G7 membership remains static, BRICS is growing, with Argentina and Iran having submitted applications, and other major regional economic powers, such as Saudi Arabia, Turkey and Egypt, expressing an interest in joining. Making this potential expansion even more explosive is the recent Chinese diplomatic achievement in normalizing relations between Iran and Saudia Arabia.

Diminishing prospects for the continued global domination by the U.S. dollar, combined with the economic potential of the trans-Eurasian economic union being promoted by Russia and China, put the G7 and BRICS on opposing trajectories. BRICS should overtake the G7 in terms of actual GDP, and not just PPP, in the coming years.

But don’t hold your breath waiting for mainstream economic analysts to reach this conclusion. Thankfully, there are outliers such as Richard Dias and Acorn Macro Consulting who seek to find new meaning from old data. 

Tyler Durden Sat, 03/25/2023 - 07:00

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