Brambles
About the author:
- Author name:
- By Alex Lu
- Job title:
- Analyst
- Date posted:
- 21 April 2017, 2:19 PM
- Sectors Covered:
- Industrials
3Q17 update in line with our expectations
The 3Q17 report from Brambles (BXB) was largely in line with our expectations with group revenue growth of 5% (constant currency) remaining in line with FY17 full year guidance. Taking currency into consideration, sales grew 4%. Given we are now nine months through the financial year, we would expect the current run rate to be maintained for the remaining quarter.
Overall, Pallets growth was 3% (constant currency), which was in line with the 3% recorded at the 1H17 result. Drivers primarily reflected modest pricing, organic and net new business growth in US Pallets and strong volume growth in European Pallets on the back of net new business wins despite lower organic demand in Southern Europe. BXB continued to experience momentum in emerging markets, particularly Latin America.
The Reusable Plastic Containers (RPCs) business continues to perform well with 12% revenue growth (constant currency) on the back of ongoing expansion with new and existing customers globally.
Management maintained FY17 earnings guidance for revenue growth in line with 1H17 growth (i.e. 5%) and flat EBIT growth (at 30 June 2016 exchange rates).
Pallets Americas still facing challenges
Pallets Americas recorded sales growth of 2% for the first nine months of FY17 (vs 8% pcp and 3% for 1H17). The result implied 0% growth in Q3 compared to 2% in Q2 and 4% in Q1. Management noted the US Pooled Pallets business secured a number of new business wins during the quarter despite competition from other poolers and ongoing pressure from lower white-wood prices. The contracts included conversion from white-wood pallets and other poolers and will start contributing in Q4, however the contribution to FY17 is expected to be minimal.
While securing a number of new business wins is (in our view) a positive, we question how much BXB had to give up on pricing to secure these contracts given the strong competition.
Minor changes to earnings forecasts
Given the 3Q17 trading update was largely in line with our expectations and management maintained FY17 guidance, we have not made any changes to our underlying earnings forecast. On a constant currency basis, we continue to forecast FY17 EBIT of US$972m. However, minor updates to currency forecasts see FY17F reported EBIT increase 1% to US$957m.
Investment view
On the back of updates to earnings forecasts and a roll forward of our model to FY18 forecasts, we have increased our PE-based share price target. With a forecast 12-month total shareholder return of 6% we maintain our Hold recommendation.
More information
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