Brambles Limited
BXB Details
Brambles Limited (ASX: BXB) is one of the most sustainable logistics businesses globally. The company through its circular business model is engaged in the sharing and reusing of the world’s largest pool of reusable pallets and containers.
H1FY22 Result Performance (For the Half Year Ended 31 December 2021)
- The company has recorded a growth of 8% YoY in its sales revenue driven by price realisation in all regions to recover inflationary cost pressures and other cost-to-serve increases.
- Cash Flow from Operations reduced US$260.5 million due to higher capital expenditure, which contains lumber inflation of US$270 million as well as US$80 million of pallet purchases deferred from FY21 due to lumber and pallet availability constraints.
- The Board has declared an interim dividend of 10.75 US cents per share, reflecting a payout ratio of 50%.
Source: Analysis by Kalkine Group
Key Risks
The company’s operations are exposed to the risks of economic uncertainty arising from the Covid-19 pandemic. It operates in competitive markets. Higher competitive intensity could affect its market penetration and financial performance. The demand of its current service offerings could be impacted by the industry trends.
Outlook
Driven by its H1FY22 trading results and the current operating environment, the company has upgraded the sales and earnings guidance ranges for FY22 to sales growth between 6-8% (previous guidance of 5-7%) and Underlying Profit growth in the range of 3-5% at constant currency (previous guidance of 1-2%) including approximately US$50 million of short-term transformation costs. Without taking into consideration the short-term transformation costs, Underlying Profit growth is expected to stay between 8-10% (previous guidance of 6-7%). The company has also revised its FY22 Free Cash Flow after dividends outlook guidance to a net outflow of US$350 million against its earlier guidance for an outflow of US$200 million representing increased lumber inflation and pallet purchases due to extended cycle times and lower pallet returns in all regions.
Valuation Methodology: EV/EBITDA Based Relative Valuation (Illustrative)
Technical Overview
Chart
Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)
Stock Recommendation
The stock has been valued using an EV/EBITDA multiple based relative valuation (on an illustrative basis) and the target price so arrived reflects a rise of low double-digit (in % terms). A slight premium has been applied to peer average EV/EBITDA multiple (NTM basis), considering strong EPS growth in H1FY22 as well as improved FY22 sales and profit guidance.
Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
Considering the aforementioned factors along with its decent outlook, we give a “Buy” recommendation on the stock at the current market price of $9.82 per share (Time: 11:48 AM (GMT +10), Sydney, Australia) on 10th March 2022.
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
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