Brambles (BXB) Update

Submitted by Jim Thesiger on 26 May, 2008 - 16:54

Brambles (BXB) has a share price target of $9.20 from Australian stockmarket analyst Macquarie Research Equities.

Brambles (BXB) Fuel cost pressures likely to hurt Crown

30% rise in pump prices will hurt CHEP Europe:

Gasoline and diesel pump prices in the USA and Europe are up around 25-30% this calendar year. Brambles spends just over US$0.8bn on transport, of which we estimate around 40% is made up of direct or indirect fuel consumption. The freight industry typically has monthly pass though mechanisms, but CHEP Europe is impeded by a 12-month lag, and other parts of CHEP and Recall generally have a 3-month lag. We estimate a 30% rise in fuel price could add c.US$60m in costs over the next 12-month period, which equates to 5% of group EBIT.

Downgrading forecasts by 8%:

We are reducing our A$ EPS forecasts by 2% in FY08 and 8% in FY09 to reflect higher transport costs, updated currency assumptions, and lower EPS accretion from the slower buyback.

Reduction in premium rating reflects emerging earnings risks:

Brambles has de-rated from a 30% to a 15% premium to the Australian Industrials average P/E, reflecting emerging earnings risk from the Wal-Mart inspired changes to downstream pallet management, fuel cost pressures, and a weaker global growth outlook. We believe our numbers reflect these risks, and suspect the stock has been oversold. However, we see little in the way of catalysts to achieve a re-rating, and the market remains nervous on premium-rated stocks exposed to global growth. Brambles' trading update on the 24th June will be the next key catalyst.

Valuation / Price target reduced to A$9.20 (was A$10.00)

Our valuation and price target are derived from a sum of the parts DCF.

Download our FREE App

Signup for Free
Don't miss out on your free share trading articles.

Free Risk Money Management Calculator for those who sign up!