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.
Result Performance (FY21 Ended 30 June 2021)
- BXB’s earnings growth is ahead of FY21 guidance with margin expansion amidst higher operating costs due to demand volatility, inflationary cost pressures and supply chain disruptions due to pallet availability constraints in all regions.
- Sales revenue rose 7% driven by volume as well as price realisation in the global pallets business and a progressive recovery in the automotive business during the year.
- Underlying Profit rose 8% with contributions from pricing, surcharge income, cost efficiencies as well as return on supply chain investments more than offsetting the input-cost inflation, and other increases in operating costs as a result of changes in the network dynamics along with the demand patterns impacted by COVID-19 as well as Brexit.
Source: Company Reports, Analysis by Kalkine Group
Q1FY22 Update:
- BXB reported sales revenue from continuing operations of US$1,292.1 Mn for the first three months of the financial year ending 30th 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.
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 Based Relative Valuation (Illustrative)
Technical Overview:
Chart:
Source: REFINITIV
Note: Purple Color Line Reflects RSI (14-Period)
Stock Recommendation:
BXB’s key focus in all the regions is increasing the pallet balances throughout the plant network in order to service the present customers and help growth as well as improved network efficiency.
The stock has been valued using EV/EBITDA 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 EV/EBITDA Multiple (NTM) (Peer Average) considering the decent outlook as well as better sales revenue in FY 2021 on the YoY basis.
Considering the aforementioned factors, we give a “Buy” recommendation on the stock at the current market price of $9.625 per share (Time: 3:27 PM (GMT +10), Sydney, Australia) on 27th January 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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