In the past year, the share price of leading pallet, crate and container supplier Brambles Limited (ASX: BXB) has gained just over 8% which is significantly better than the near 6% fall in the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).
That superb outperformance is pleasing for shareholders but of course what matters now is – where to from here?
At a recent UBS Australasia Conference in Sydney, Brambles's CEO, Tom Gorman highlighted why investors can remain positive on the outlook for the stock…
- Brambles' business has captured a strong and sustainable competitive advantage which drives superior rates of economic return and positions the group to deliver superior levels of growth. This competitive advantage is reflected in the consistent incremental improvement in Brambles' return on capital invested (ROCI) which management is aiming to increase to 20% by FY 2019.
- Meanwhile, the superior growth is forecast by management to allow Brambles to achieve high-single digit growth in sales revenue. The group aims to achieve this via organic growth capital expenditure, and by capturing the large, current unserved opportunity for pallet pooling available across its global markets.
- Management provided a first quarter trading update during the UBS presentation which confirmed sales revenue growth across the group on a constant currency basis of 8%. Full year guidance was also reconfirmed for sales revenue and underlying profit growth in the range of 6% to 8% on a constant currency basis – this translates to an underlying profit between US$1 billion and US$1.02 billion at 30 June 2015 exchange rates.
There's a fourth reason to be look favourably on Brambles, namely, valuation. With a share price of $10.63 and consensus earnings per share for FY 2016 at 55.4 cents per share, the stock is trading on a price-to-earnings (PE) ratio of 19.2 times – that multiple is arguably reasonable considering the above average forecast earnings growth rates and the qualitative factors of this blue chip stock.
