February 16

Brambles (BXB) : Pool player

Brambles is a supply-chain logistics company operating in more than 60 countries, primarily through the CHEP pallet- brand. Brambles specialises in the pooling of unit-load equipment and the provision of associated services, and is focusing on the outsourced management of reusable pallets, crates and containers. Economic activity is set to slow across Brambles’ core markets in FY24. In the US, where Brambles generates an estimated one-third of operating earnings, we expect real GDP growth of 1.6% over 2024, a marked slowdown from forecast growth of 2.5% in 2023. US non-farm inventories, a barometer for Brambles’ operating conditions, jumped in the September quarter of 2023, but we expect this will likely prove an aberration from a downward trend as the economy slows and firms pare stock levels. Despite headwinds, we think Bramble’s earnings will prove resilient in FY24. We expect an 11% improvement in operating income, near the top end of guidance. This represents a slowdown from the 15% growth of FY23, but firmly outstrips the outlook for broader economic activity.

Brambles’ earnings resilience is partly a function of its sales mix. The majority of sales stem from the rental of pallets to large and defensive fast-moving consumer goods, beverage, and fresh food companies. Exposure to consumer staples dampens Brambles’ correlation to the economic cycle. A recession would prove a headwind to pallet utilisation, but Brambles’ customer exposures position it favourably against sub-scale, higher-cost competitors with less resilient customers. Price resets in FY24 should also support operating margins. We also remain positive about Brambles’ long-term prospects. Earnings growth is supported by high pallet utilisation rates, improving pallet recovery, and repair automation. We expect Brambles to pick up share across its core geographies, with cost advantages resulting in a lower cost to serve, in turn facilitating incremental volume growth.


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