Leading pooling solutions provider of reusable pallets, crates and containers, Brambles Limited (ASX: BXB) held its Annual General Meeting (AGM) on Thursday and shareholders obviously were pleased with what they heard.
The blue-chip stock finished the day 1.25% higher with 5.1 million shares trading hands in an otherwise lacklustre day on the market where the S&P/ASX 200 (Index: ^A XJO) (ASX: XJO) slipped 0.2%.
For investors who like to fill their portfolio with high quality blue-chip stocks, Brambles is more-than-likely a core holding. It certainly makes sense for these investors to own Brambles, here are four reasons why:
1. Brambles provides shareholders with exposure to the fast moving consumer goods (FMCG) sector where the group plays a critical role facilitating the movement of literally billions of goods through supply chains using Brambles' pooling solutions. The group's scale sees them utilised by many of the largest and most successful FMCG companies in the world such as Heinz and Nestle.
TICK: This critical role and diversified customer base provides a "blue-chip" level of defensive earnings quality.
2. Brambles' return on capital invested in FY 2014 was a sound 16.2% but still below management's stated aim of growing this metric to 20% by FY 2019. Meanwhile, total shareholder returns (TSR) over the past five years have been an impressive 80%, which is solid outperformance against the benchmark S&P/ASX 200 which has produced a TSR of 49% over the same period.
TICK: Brambles earnings and business quality and historic returns are above average – just what an investor desires in a true blue-chip stock.
3. Despite the demerger of Recall Holding Ltd (ASX: REC) the board committed to not decreasing the dividend paid to shareholders. In FY 2014 total dividends of 27 cents per share were paid which was in line with the previous year when the company still owned Recall.
TICK: A hallmark of blue-chip stocks is a steady, growing and maintainable dividend.
4. Brambles' unique position within the supply chain has enabled it to build a sustainable competitive advantage that in turn drives a positive feedback loop of value for customers. This competitive advantage produces attractive rates of economic returns for shareholders and attractive rates of growth relative to the sectors in which Brambles operates.
TICK: A sustainable comparative advantage creates a 'moat' around Brambles' business and is a key attribute of a blue-chip company.
Future outlook is good
Management is aiming to remove over US$100 million in costs from the group by FY 2019 which bodes well for the long-term future profitability of Brambles. In the near term things look good too…at the company's AGM a first quarter trading update was provided. Sales were up 6% to US$1.4 billion with Pallets (which account for 75% of group business) up 5% with all regions delivering increased volume, reusable plastic crate revenue grew 10% and container revenue grew 19% thanks in part to acquisitions.
