Up 39% in a year, is there more growth to come for this ASX 200 share?

IML Equity Analyst Josh Freiman shares his views on a major ASX 200 industrial stock.

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a man sits back from his laptop computer with both hands behind his head feeling happy to see the Brambles share price moving significantly higher today

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ASX 200 industrial share Brambles Ltd (ASX: BXB) has delivered impressive gains for its shareholders over the past 12 months.

The stock has risen 39% over the year and is trading at $19.05, down 0.99%, on Thursday afternoon.

After so much growth, is it too late to buy Brambles shares?

In a podcast by Natixis Investment Managers Australia, IML Equity Analyst Josh Freiman provides his point of view.

Can this ASX 200 industrial share rise further?

Brambles is the 20th largest ASX 200 share by market capitalisation.

The company is the world's largest supplier of reusable wooden pallets and crates used for storing and transporting goods. 

Its CHEP-branded pallets are used primarily in the retail, manufacturing, and fast-moving consumer goods sectors.

Among its 300,000 customers are multinationals like Costco, Coca-Cola, and Woolworths Group Ltd (ASX: WOW).

The ASX 200 share is a major holding across several IML equity portfolios.

Freiman notes a marked acceleration in the company's cash flow generation over the past 12 months.

He said Brambles had to invest significant capital expenditure (CapEx) during COVID to build and source more pallets so retailers could move a greater number of goods purchased online.

Higher CapEx led to lower free cash flows during this time. Today, Brambles is spending less on CapEx under normalised trading conditions and has also improved its efficiency.

The company recently undertook a trial in Chile in which all the pallets were given serial numbers.

This enabled Brambles to track them individually, providing valuable insights into which clients were more likely to lose, damage, or illegally on-sell pallets and which ones were using them properly and efficiently.

This has allowed the company to introduce dynamic pricing. This incentivises clients to return the pallets in good condition, and rewards customers who are already doing so.

This has resulted in pallets being moved through the economy and returned to Brambles faster.

In turn, this has raised Brambles' efficiency and improved its margins.

Future 'looks really bright'

Freiman said the ASX 200 industrial share has seen a "rapid share price re-rating" amid an improved operational performance. From here, the analyst says Brambles' future "looks really bright".

When I look at how the business is tracking with that serialisation plan, with the different asset efficiency or pallet retention programs that they have in place, we've really started to see their cashflow generation improve. We've started to see their margins tick up.

Freiman says if Brambles continues to improve its efficiency under the plan, IML forecasts a more than 10% compound annual growth rate (CAGR) in Brambles' earnings per share (EPS) for the next three years.

This will mean "significant further opportunities for dividend increases and further share buybacks beyond this next period", said Freiman.

What will a Trump Presidency mean for Brambles shares?

Freiman considers Donald Trump's election as the next US President a positive for Brambles.

He points out that the Chep Americas division has a 40% market share of pallets in the US.

It is, therefore, "a very integral part of the economy" in a highly protected industry.

He comments:

I think that they can do well out of a Trump government, especially if the market starts to hum along a little bit quicker.

Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Costco Wholesale. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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