Brambles (BXB) Update

Brambles (BXB) has an Outperform recommendation and a target stock price of $12 per share from Australian share analyst Macquarie Research Equities.

Brambles (BXB): Much Ado About Nothing

BXB took a hammering on Friday after announcing that Wal-Mart, their largest US customer, will modify the management of its internal pallet network. This announcement saw BXB tumble to all time lows of $8.25 before staging a late recovery to close at $9.00, still a 10% discount to its previous days close. Subsequently, BXB management confirmed the announcement would have no impact on CHEP revenues, volumes or margins. Given this clarity it seems Friday’s sell off in BXB has been overdone. Is this a buying opportunity?

Brambles (BXB) - Outperform
Current Price: $9.00
Target Price: $12 (~33.3% Upside)
P/E: 18.7 X
Div Yield: 3.6% (15% Franked)

Brambles (BXB) Fundamental View

Macquarie Research Equities (MRE) Fundamental View:
1. MRE believes that Wal-Marts changes to their pallet management are unlikely to have an impact on CHEP revenues and volumes, given it is the manufacturers which drive CHEP revenues/volumes by paying CHEP per pallet issue. Wal-Mart does not actually pay CHEP for receiving pallets.
2. Wal-marts move to outsource pallet management at it’s distribution centres is unlikely to affect CHEP margins. Any change in margins, MRE believes can be recouped from pricing increases with it’s manufacturers.
3. MRE maintains an outperform recommendation on the basis of strong earning certainty and resilience to a slowing US economy.