Treasure Chest: Brambles Sour On The Palate

This story features BRAMBLES LIMITED. For more info SHARE ANALYSIS: BXB

FNArena's Treasure Chest reports on money making ideas from stockbrokers and other experts. Today's idea is Brambles from Morningstar.

By Danielle Austin

Whose Idea Is It?

Analysts at Morningstar

The subject:

The -7% decline in Morningstar’s fair value estimate of global pallet leasing services provider Brambles’ ((BXB)) share price.

In a more cautious approach to valuation, the estimate decrease was largely attributed to the removal of long-term opportunity for Brambles in the China, India and Russia geographies from Morningstar’s price. Although the broker continues to see value in Brambles’ long-term operations, Morningstar analysts feel the pathway to realising opportunity is too long for most investors to attach value to without indication of advancement towards tangible milestones.

Morningstar analysts noted these geographies hold potential to be highly lucrative if the company can execute its pallet pooling model, but the pathway to implementation involves higher labour costs and supply chain standardisation. As these changes will occur over a longer period of time, the development path for the regions is too uncertain for many investors.

More info:

Brambles is the largest global provider of pallet pooling services, benefiting from key market scale advantages. The company has faced weakening investor sentiment in recent years as rising e-commerce trends threaten traditional supply chains and impact pallet movement.

Despite having previously targeted growth through diversification into adjacent sectors, Brambles has refocused on its core business including the divestment of non-core businesses and continued investment in automation efficiency and digital transformation to increase volume capacity

The company has operations spanning 60 countries across regions including the US, UK, Europe and Asia Pacific. Looking forward, Morningstar expects the company to achieve above market growth rates of between 1.5-2.5% through to 2031 in the Americas, Europe, Middle East and Africa regions. The broker is forecasting 10-year sales and before-tax earnings compound annual growth rates of 5% and 7% respectively.

Elsewhere in coverage on Brambles, Credit Suisse also noted a -14% share price fall since the company’s September investor day. Credit Suisse analysts attribute this to investor concern around plastic pallet contagion and guidance for higher near-term costs, but expects continuing investment in automation and digital will drive a 10% pre-tax earnings growth in FY23 and FY24.

Of the seven brokers in the FNArena database, five have Buy or equivalent ratings on Brambles and two have Hold, with a consensus target price of $12.48.

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