Brambles Limited (ASX: BXB) is an S&P/ASX 20 (INDEXASX: XTL) listed supply chain logistics company with operations in over 60 companies.
Brambles generates revenue from the “pooling of unit-load equipment and associated services, focusing on the outsourced management of pallets, crates and containers”. You’ve likely seen the blue wooden “CHEP” pallets in loading areas.
In late February this year, Brambles announced it had sold its IFCO RPC (Reusable Plastic Container) subsidiary for US$2.5 Billion. The majority of the proceeds, up to US$1.65 Billion, will be returned to shareholders via an on-market share buyback. The remaining proceeds will be used to deliver a capital return of $0.29 per share and the repayment of debt.
Brambles’ 3Q19 Trading Update
In April, Brambles released its third-quarter trading results for its 2019 financial year. Revenue from continuing operations was up 7% on the prior corresponding quarter at constant-currency foreign exchange rates. Brambles advised that despite inflationary input-cost pressures, it expects underling profit growth to show “modest improvement” over the prior year.
In the Brambles 2018 annual report, management pointed to labour, lumber and transport rates in the US and Europe as the source of its cost pressures. Also within this report, Brambles’ chairman revealed that the company was facing “robust competition” within its major markets.
Looking forward, Brambles advised it expects margins to improve over the medium term due “cost-out” initiatives, largely resulting from their three-year automation investment program that is set to conclude in 2021.
Are Brambles Shares Cheap?
In my view, Brambles has acted in the best interests of shareholders to divest non-core assets and utilise the proceeds to reduce debt and combat competitive and inflationary pressures through its automation program.
While this may result in Brambles achieving higher rates of Return on Capital Invested, I think it’s unlikely that revenue and profit growth will exceed mid-to-high single digits over the medium term. As the Brambles share price has rallied around 30% over the last the 12 months, it trades on a current trailing price-to-earnings ratio of around 22x and a trailing dividend yield of just 2.38%.
Overall, I think there are better opportunities out there, such as the ASX growth shares in the free investing report found below.
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At the time of publishing, William does not have a financial interest in any of the companies mentioned.
