Brambles Limited

BXB Details

Brambles Limited (ASX: BXB) is a supply-chain logistics company operating in over 60 countries, mainly through the CHEP brand. Its circular business model provides the ‘share and reuse’ of reusable pallets and containers. 

Result Performance for the Year Ended 30 June 2021 – (FY21)

• Sales revenue grew 7% YoY to US$5,209.8 million mainly led by volume and price realization in the global pallets business and an acceleration in recovery in the automotive business.
• Operating profit grew 8% YoY to US$879.3 million, driven by the contributions from pricing, surcharge income, cost efficiencies and return on supply chain investments
• Profit after tax stood at US535.0 million, up 5% YoY at constant currency and 2021 Final dividend of 10.5 US cents per share and total dividends for FY21 stood at 20.5 US cents per share resulting in a payout ratio of 54%.

Key Financials (Source: Company Reports) 

Key Update: 

• As per the release dated 23 September 2021, the company released a ‘change of Director’s interest notice’ for Ms. Nessa O’Sullivan. 42,336 of 88,452 ordinary shares were sold automatically held by Sargon CT Pty Ltd on behalf of Ms. O’Sullivan to meet employer withholding tax liability.

Outlook:

As per the investor briefing on 13 September 2021, the company expects revenue growth in the range of 5-6% for FY22. Further, underlying profit growth is anticipated to grow 1-2% including ~US$50 million of short-term transformation costs. The dividend is planned to be in line with the company’s policy to pay out between 45-60% of underlying profit after finance costs and tax in US dollar terms for FY22. Meanwhile, the free cash flow is expected to be an outflow of ~US$200 million primarily led by the reversal of US$215 million of FY21 timing benefits. 

Meanwhile, as per the investor briefing on 14 September 2021, the operating environment and inflation pressure continue to impact the business, however, due to its strong market presence, the business is well placed to offset through pricing and productivity. 

Key Risks:

Climate change and carbon emissions risks are completely integrated into the company’s risk management process and regularly reviewed. The key risks to Brambles’ ability to achieve its strategic, financial, and sustainability objectives are Macroeconomic conditions including, for FY21 and FY22, economic uncertainty arising from the COVID-19 circumstances, industry trends in the retail, grocery, and consumer goods supply chains.  

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

Technical Overview

Daily Price Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)

Stock Recommendation:  

The company has delivered 6-month and 1-year returns of ~+2.7% and ~-0.2%, respectively. The stock is trading lower than the average of the 52-week high price of $12.70 and the 52-week low price of $9.54, which indicates a good opportunity for accumulation.

The stock has been valued using an EV/EBITDA multiple-based illustrative relative valuation and a target price so arrived reflects a rise of low double-digit (in % terms). A slight premium has been applied to EV/EBITDA Multiple (NTM) (Peer Average), considering a shorter cash conversion cycle at 1.5 days in FY21 versus 3.4 days in FY20 and a higher asset turnover at 0.72x in FY21 versus 0.64x in FY20.

Considering the aforesaid facts, we give a ‘Buy’ rating on the stock at the current market price of $10.700, down 1.655%, as of 28^th September 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices

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