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Writer's pictureCharles Miller

Breville & Redbubble – Invest in what you understand & enjoy

This is not investment advice. Do your own research before taking a position in any of the securities mentioned in the post below. The author may hold positions in any of the securities mentioned.


#1 - Redbubble – why I missed its 2020 rebound & how I'd value it

The investors of Redbubble have enjoyed a good long-term run, up 3x over the last 5yrs (and 8x since COVID-19 lows) whilst I have sat on the sidelines. Do I regret it? Sure. However, I still find it difficult to understand how this business, a marketplace for art-based T-shirts, accessories, would be so successful. Let me explain:

  • Artist attrition: For highly popular artists, Shopify has materially lowered the friction associated with starting their own website. Sure, Redbubble gives artists exposure through a marketplace, however, the concern is that this is a marketplace solely for artists that are not successful enough to Shopify

  • Customer retention: Repeat customers are <half (c.45%) of revenue, and the average customer makes 1.1x purchases a year. Whilst repeat purchases are difficult for all discretionary retail; my concern is the need for constant spending on customer acquisition

  • Difficulty to estimate their TAM: Despite all the Total Addressable Market (TAM) graphs in their investor packs, it is genuinely difficult to know what % of discretionary spend will be artist-inspired. For example – is there that much of a difference between fast-fashion t-shirts and t-shirts designed by an artist... maybe I am not the right person to ask?

Despite all my pessimism, the business has the benefit of their business a) broad product range and b) decent spread between margin on each customer & cost of acquiring (gap between blue and grey line in the right-side graph below)


So, on this one – instead of running a detailed valuation – I would recommend anyone interested in this business to do the following valuation

  • Take a conservative punt on how much the market will grow

    • RBL transaction value has grown 41% CAGR for last 5 years

    • Management assumes 20-30% for next 5yrs (trim that to be safe)

  • Overlay a lowish EBIT margin; currently 7% & likely to fall based on PAC ROI above

  • Bake in some future shareholder dilution if you are assuming 20%ish topline growth

  • If you think a $4/share price is justified – go ahead


#2 - Breville – Perfectly price so I'm praying for a sell-off

From the high-tech realms of marketplaces to boring old kitchen appliances. The ‘secret sauce’ to this company is the fact that they have consistently taken their brand into other countries (e.g. currently expanding into Mexico/Portugal) and kept returns intact. Whilst that is not special for US companies… it is for Australian ones.


Before launching into Breville – I would flag – I do not rate the concept of getting “cheaper” exposure to this company via Premier Investments which owns c.30%. Sure, Breville trades on a big multiple, however, there are too many Aussie-focused fashion brands (e.g. Smiggle, Peter Alexander, Jay Jays) in Premier which dilute Breville & in my opinion you are ultimately worse off.


So here are a few facts about Breville

  • FY21 underperformed: Breville were punished by the market upon release of the FY21 results partially due to a shipping back-log meant they couldn’t meet demand

  • Current +40x multiple: Overall it is trading on a high +40x multiple buoyed WFH demand. In anyone’s lexicon that is high and historical averages are closer to 25x

  • Decent long-term outlook: Since 2015, earnings have grown at c.11% CAGR and consensus estimates are that it will grow c.12.5% over the next 3 years

Priced to perfection: Most upsettingly if you do run the numbers on valuing Breville as follows:

o 12.5% EBITDA growth and margins in the mid-teens

o Fairly limited capex (c.3% of sales; with sales growing at 15%)

o 10% movements in working capital (excl. some funky numbers in FY22 for the backfill in stock)

Voila – you have a share price pretty much where we are today (c. $29.70)

Note - No point analysing this DCF to the cent. Let's call it c.$28 vs. $30 today - it is pretty much par

So, in my humble opinion – there’s nothing special available for you at today’s valuation for Breville. However, insofar as a globally diversified consumer goods play; I think it is potentially the best we have in Australia.


I will leave it in your capable hands to be patient or not. It would be wise to wait for a 10-20% fall but then again that might never happen. However, one thing is for sure I probably always going to prefer coffee machines over artwork-inspired mugs.


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