Brambles Limited

BXB Details

Brambles Limited (ASX: BXB) is the supply-chain logistics company which operates in over 50 countries, mainly through the CHEP as well as IFCO brands.

First-quarter Trading Update

• BXB reported sales revenue from continuing operations of US$1,292.1 Mn for the first three months of the financial year ending 30^th June 2022. This implies a rise of 11% on pcp at the actual FX rates. At constant FX rates, Group sales revenue rose by 9% on pcp.
• The company’s first-quarter sales performance reflected the commercial resilience of the business. Notably, pricing as well as surcharge mechanisms supported the recovery of the increased costs throughout the global supply chains.
• The company’s key focus in all the regions revolves around increasing the pallet balances throughout the plant network to service the existing customers as well as support the growth as well as improved network efficiency.

Source: Analysis by Kalkine Group

Outlook:

In constant-currency terms:

• The company is anticipating to achieve underlying profit growth of between 1-2%, including ~US$50 Mn of the short-term transformation costs. Excluding these short-term transformation costs, the company stated that underlying profit growth is anticipated to be between 6-7%.
• Free cash flow is anticipated to be an outflow of ~US$200 Mn, including the reversal of US$215 Mn of timing benefits mainly related to deferred pallet purchases in FY 2021.

Key Risks:

The company has stated that it is operating in the high inflationary environment with pallet availability constraints as well as ongoing lumber, labour and transport scarcity impacting the supply chains as well as driving higher costs throughout the businesses.

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

Technical Overview:

Chart:

Source: REFINITIV

Note: Orange Color Line Reflects RSI (14-Period)

Stock Recommendation:

The company has posted net margin of 10.3% in FY 2021 as compared to the industry median of 8.2%. Therefore, it could be said that BXB is possessing decent capabilities to convert its top line into bottom line.

The stock has been valued using EV/EBITDA multiple-based illustrative relative valuation and the 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 decent outlook as well as higher gross margin in FY 2021 as compared to the industry median.

Thus, we give a “Buy” rating on the stock at the price of A$9.870 per share (Time: 12:49 PM (GMT +10), Sydney, Australia) on 2^nd December 2021.

Brambles Limited (ASX: BXB) is a part of Kalkine’s Global Big Money Report’

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 unfavourable movement in the stock prices.