Australia's Breville poised to benefit from rising coffee prices, says Citi

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Investing.com-- Australia's Breville Group Ltd (ASX:BRG) may benefit from a surge in coffee prices as consumers look to save costs by making coffee at home, according to Citi analysts.

Arabica coffee prices have risen 71% in 2024, reaching their highest level since 1977 due to tight global supply. This sharp increase is expected to drive higher coffee prices at cafes, potentially encouraging consumers to shift towards at-home coffee solutions—a market where Breville is a leading premium player, analysts at Citi said in a note.

However, Citi maintains a neutral rating on Breville, citing a delayed potential impact for the company. It has a price target of A$36.51 on the kitchen appliances maker.

Breville typically enters consumers’ purchasing decisions as their third or fourth coffee machine brand, after initial purchases from lower-cost competitors, according to the brokerage.

"For us to turn more positive we would need more from the company around the timing of new direct market entries," Citi analysts wrote.

Despite this, Citi highlights several organic growth drivers for Breville, including geographic expansion, new product development, and strong market tailwinds in the at-home coffee sector.

Citi sees rising competition in the premium coffee appliance market as a key risk. Challenges such as fluctuating consumer confidence, brand execution, and cost management also pose risks to Breville’s growth trajectory.

While Breville is well-positioned for long-term growth, the company must navigate these risks to capitalize on opportunities presented by higher coffee prices, Citi analysts added.