Brambles (BXB) Share Trading Update

Submitted by Craig Strzelecki on 6 March, 2007 - 18:02

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

Brambles Limited is listed on the Australian Stock Exchange (ASX) under stock code BXB. You can view their investor website here. Find out the meaning of the recommendations in this primer. BXB was listed on the ASX on 27 November, 2006. Brambles is a provider of equipment pooling and information management services through its CHEP and Recall businesses. The CEO is Michael Ihlein and the chairman is Donald Robert Argus, AO. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade BXB. Check your charts and good luck with your share trading!