Brambles is under Algo Engine sell conditions and we’ll review the FY19 earnings result with interest when announced on the 21st of August.
Earnings are likely to come in below the “moderate growth” expectations. We think the number will be flat to negative. Downside risks to the share price are underpinned by the share buyback which will recommence, post the earnings result.
Based on FY20 earnings we have BXB trading on a forward yield of 2.5%.
Brambles has announced the sale of its IFCO business to Triton & Luxinva for US$2.51bn. The proceeds will be used to:-
$300m return of cash through a $0.29 special unfranked dividend and up to $1.65bn on-market buy-back. The balance will go towards reducing debt.
Our key concern with BXB is the recent earnings result showed underlying EPS growth of 2% and with the stock trading 22x earnings, it looks expensive.
Brambles BXB reported 1H19 earnings which showed solid revenue growth but only a modest 2% profit growth.
EBIT from 1H19 continuing operations of US$504m.
We expect FY19 underlying profit growth to show low single digit improvement on the same time last year.
The stock looks slightly expensive at 19x and 3% yield. We’re looking for a pullback to sub $10.50 before reconsidering.
The IFCO separation remains on track for completion this year and will help underpin the share price.
We recommend buying BXB at $10.50 or better.
Investors can then look to sell the $11.01 Euro covered call option into March 2019, whilst staying exposed to the 14.5 cent March dividend.
Brambles reported 1Q FY19, which guided towards flat 1H EBIT growth.
With the stock trading 16 x earnings and 3% yield, we believe there is only limited upside to the share price in the short-term.
The attractive story here is the upcoming spin-off of the plastic pallet pooling business. We expect this to go to a shareholder vote and be finalized early next year.
Buy BXB and sell covered call options to enhance the yield.
Our Algo Engine generated a buy signal in BXB last week and we highlight the price gap in the chart down to $10.06.
We’ve upgraded BXB to accumulate and our buy target range is $10 – $10.40
The potential spin-off of the plastic pallet pooling business will unlock value for shareholders and provides the catalyst for us to have a favorable medium term outlook on the business, along with modest earnings growth showing up in the latest 6-month result.
Our ALGO engine triggered a buy signal for BXB into yesterday’s ASX close at $10.39.
This “higher low”pattern is referenced to the intraday low of $9.55 posted on August 8th.
As illustrated in the chart below, BXB has filled the price gap dating back to mid-August, which will provide good support down the the $10.00 area.
We have an estimated upside price target near $12.75 over the medium-term.
Brambles has been excluded from our models for the last 2 years, due to the lower high price formations, caused be deteriorating profit margins.
We’seen underlying group profit slip over the last 2.5 years from high single digit growth, to negative growth.
After reporting underlying EBIT of US$997, up 4% on the same time last year, we’ve hopefully seen the inflection point. A further positive is the announcement of the IFCO sale, which is likely to fetch up to US$2.5b.
With the stock trading 20x earnings on a 3% yield, we consider it close to full value.
We recommend investors add Brambles to their portfolio as an income play.
Buy the stock and sell $10.50 June call for $0.38 credit and keep exposure to the $0.145 dividend on the 8th March.
Our ALGO engine triggered a sell signal in BXB on yesterday’s ASX close at $10.19.
This was the highest closing price since June 26th, but still within the technical “lower high” pattern based on the May 29th high trade at $10.70.
We consider the current price level to be near the top of the counter trend range and ready to trade lower.
Fundamentally, BXB is trading at 19X earnings and a 3.1% yield based on FY18 earnings
For those CFD traders using our SAXO Go platform, we see the next significant price support level near the early November lows at $9.40.