We initiate coverage on Breville group, a global kitchen appliance developer that has achieved very strong sales growth in recent years, particularly in the coffee category. After a soft FY24e, we expect solid sales growth to resume in FY25e and beyond with household penetration, new markets and new products all supporting sales growth of 6%-9%. While gross margins should also expand, the company will need to invest in advertising and product development to sustain momentum.

We initiate coverage on Costa Group, the largest fruit & vegetable grower in Australia. The company produces mushrooms, citrus, berries, avocados and tomatoes. The key determinant of earnings over the next three years will be price realisation across its domestic and international markets. We expect pricing has stabilised in Australia, but we are cautious about blueberry pricing in China and Morocco in the next 12 months. The company has a promising path for earnings growth over the next three years given increased citrus exports, its tomato glasshouse expansion and hectare growth in China.

We initiate coverage of Inghams Group, the largest poultry company across Australia/NZ.  The drivers of Inghams earnings growth are continued solid demand growth for poultry, a favourable sales mix and reduced feed costs. The company can also make acquisitions and may expand into pet food supply or meal kits. We see an upside skew in margins with a better sales mix and rational pricing in the poultry market for both Australia and New Zealand.

We initiate coverage on JB Hi-Fi. In our research report, we assess the sustainable earnings base. JB Hi-Fi has won market share, which has supported operating leverage. The majority of the gross margin gains in The Good Guys are likely to stick given both an improved sales mix and better bargaining with suppliers. The company also has a net cash position providing it with opportunities for growth or capital management.

We initiate coverage of Treasury Wine Estates. After a tough 18 months, we expect stabilisation in earnings the shift to a “divisional” model that separates Penfolds will put the spotlight on that segment. The loss of earnings from China is painful, but the reallocation to other markets is likely. The company has scaled back its Americas business to focus on premium wines. The simplification of Treasury and focus on its core brands should support both sales and margins.

We initiate coverage on Wesfarmers. While Wesfarmers retail businesses are well positioned, they have seen significant benefits to sales and earnings over past two years, which will partly reverse. As a result, retail earnings could drop over the next two years. A special dividend is possible near-term. Wesfarmers has over $10 billion in acquisition capacity on our estimates, but in recent times has only made smaller adjacent acquisitions within existing businesses. The creation of a Health segment is one logical extension for the company with an Australian healthcare industry EBITDA profit pool of over $28 billion.