BXB

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Brambles (BXB) has an Outperform recommendation and a $12 share price target from Australian stockmarket analysts Macquarie Research.

Brambles BXB: Breaking Out

Brambles (BXB) - Outperform

Current Price: $10.42
Target Price: $12.00 (~15% Upside)
P/E: 20.4 X
Div Yield: 3.3% (46% Franked)

Brambles (BXB) Technical Analysis

Brambles looks to have broken out to the upside after forming solid sideways pennant pattern of recent times. This technical viewpoint only acts to support Macquarie Research Equities (MRE) solid fundamental view of BXB.

Brambles (BXB) has an outperform recommendation and a 12 month share price target of $12 from the analyst: Macquarie Research Equities.

BXB: A Defensive Global Logistics Firm

Brambles (BXB)has a reiterated Outperform recommendation from Australian stocks analysts Macquarie Research. Recently, Brambles (BXB) shares were savagely marked down by the market after the company released a trading update which disappointed investors. But value investors that liked the story used the weakness as a buying opportunity and have steadily pushed the stock towards levels seen before the recent sell-off. The analysts believe the fundamentals of the BXB story remain intact despite the European sales numbers which initially disappointed the market. Chep US - sales up 8%. The analysts' expectation was 7.3%, thus the strength is attractive. A stronger consumer in America is clearly a positive for the stock. Importantly Chep US has been able to achieve efficiency savings and pass on higher fuel costs through surcharging Chep Europe - sales up 2%. After disappointing in the first half, the anlaysts' sales expectation was at 2.6%, thus not materially different. However the profit growth in local currency is ~4% appears too high and is likely to be in the order of 0-2%. The business was effected by the higher oil prices, it absorbed this in its activity based pricing. Management believe Europe is improving, but it will simply take time. At this stage investors will remain sceptical until evidence emerges. Chep Rest of World (RoW) - sales at 9% again proving the attraction of Australia and South Africa. Management made the comment of start up costs in China have an effect on profits, however the pallet pool potential of China easily offsets this short term loss. Recall appears to have bounced back. Brambles also attempted to address the capital management issue, by highlighting it has returned US$3.4bn to investors. With debt of US$2.1bn, Brambles has significant flexibility to continue the buy back program. Management indicated that it is seeking to expand the buy back for another 10% of the stock or around ~US$1.3bn Investors were obviously disappointed with the Europe sales figures. Unlike the US, Europe has been far slower to turn around, has not had as much pricing power in the market, possibly reflecting the fact that Europe is still a fragmented region with significantly more customers. The share buy back will pause until the November/December post shareholder approval and notice period. Whilst investors may wish for special dividends, a share buyback or capital return are the sensible means of return the money to investors efficiently. Moreover a Brambles (BXB) share buyback continues to signal management see there share price undervalued. The analysts believe the fundamentals of the asset have not changed. The questions over Europe continue. In the very short term this has caused weakness, but with a balance sheet having substantial capacity for additional debt to fund buy back beyond 2008 and management providing another update in August on the growth of Europe.

Brambles (BXB) has an initiated coverage with a Buy broker call and a $15.30 price target from sharemarket analyst Citi Investment Research. De-equitisation and Growth: A unique business with a diversity of global cash-flows, an abundance of the financial flexibility and minimal impediments to stable growth. Key Issue 1: Optimal Gearing: The analysts assume Brambles (BXB) undertakes a US$5bn on market buy back over next five years and buys back one-third of its issued capital. This de-equitisation adds $2.00 to our standalone valuation of $13.25 - $13.50. Key Issue 2: Growth or Cyclical — Definitely growth. Analyst standalone valuation assumes 14% CAGR in FCF by 2015e. This is a demanding growth profile but CHEP and Recall can sustain 2-3x GDP growth. The analyst's are bullish on growth in CHEP Germany but believe CHEP USA holds the key to medium term growth as penetration increases from 38% to 55% and ROIC breaks through 30%. Key Issue 3: Divest Recall — Divest over next 1-2 years when margins improve. There are few global synergies with CHEP and a trade sale could achieve at least US$1.5bn. Any disposal would expose CHEP "rump" as a prime takeover target and may prompt management to leverage CHEP cash flows for protection. Valuation: Premium Rating Justified — PE Rel falls from 1.6 to 1.3 if CIR notionally adjust the depreciation policy for a longer useful pallet life. Also CHEP’s high growth/high ROIC (>30% pre-tax by 2010e) supports higher ratings. Catalysts and Risks for Brambles (BXB): Key upcoming events are: (i) trading update (21 June); (ii) FY07e result (22 August) and (iii) US and UK site visits for CHEP and Recall (24-29 October). CIR have confidence management will deliver on growth and cap management or face risk of private equity advances.

Brambles Limited (BXB) has a Buy 1 Broker Call and a price target of $15.50 per share from market analyst UBS. The analyst has observed a 11% underperformance since 1H result. Brambles has underperformed the Australian All Industrials by 11% since its 1H result in late February. They see this as likely to continue due to a lack of near term catalysts, conclusion of its buyback in 2-3 weeks, and downgrades to A$ EPS from the buyback and currency. They have downgraded our A$ EPS by 2-4%, despite our underlying US$ EBIT going up by 2-3%. They now expect only 5% growth in FY07 EPS, compared to our 10-12%pa medium term expectation. A 5% appreciation in the A$ against the US$ would wipe a further 4% off A$ EPS, but 2% of this would be saved if the Euro and Sterling also appreciated. Capital Management: At the current rate, Brambles will reach its 10% buyback cap in 2-3 weeks, and will have spent US$1.5bn. The company will still have to find a home for US$1bn and pay out 130% of annual earnings in order to keep its gearing up at reasonable levels. But, an announcement in this regard could be some way off. Brambles Limited (BXB) is currently trading on 24x FY08E EPS, which is at a 30% premium to the Industrials average. On more important cashflow metrics, the stock is only trading at a 15-20% premium, which we see as undemanding given the company's strong investment traits.

Brambles (BXB) have a Buy 1 share trading recommendation and a price target of $15.50 per share and a company valuation of $14.60 per share using DCF from stock analyst UBS. The analyst asks the question whether if IFCO is a threat or opportunity for Brambles? IFCO could be a strategic threat to CHEP. Although IFCO only operates a pallet sale model, it controls 12% of all pallet issues in the US, well ahead of the next largest at 1%. Further, its unique nationwide infrastructure of service centres and existing relationships with CHEP's customers and retailers represent the ideal beachhead for a new pallet pooling entrant.The analyst believes that in acquiring IFCO would offer Brambles material operational synergies in US pallets, give its European RPC business scale, and remove the threat of a new entrant. Now may also be an ideal opportunity given Brambles' lazy balance sheet and the US Immigration and Customns Enforcement investigation of IFCO. Acquiring IFCO for US$1bn would be EPS accretive to Brambles and help gear its balance sheet, but would inevitably dilute its ROIC in FY08 from 32% to 27%. The financial benefits of a deal would largely depend on pricing discussions with Apax private equity, which controls 89% of IFCO, and would crystallise a c.60% IRR on our assumptions. The analyst's DCF based valuation is A$14.60 and we have a A$15.50 price target based on a 12-month forward dated DCF. Brambles is currently trading at a 5% premium to the All Industrials average OpFCF multiple