Brambles has managed to create a global pallet business, which makes it different from the usual dreary domestic oligopolies. But being global at the moment is no easy road, even for the best of companies, let alone those facing challenges. Earnings are being affected by weakness in America and Europe, unsurprisingly. There is some sign of counter balancing growth in emerging economies and acquisitions have opened up some growth paths. The business is capital intensive but gross margins of about 27% give some comfort. Earnings per share are expected to increase by 16% next financial year.
Analysts are focusing on the failure to sell the Recall information management business which will result in an equity raising of $446 million of a 1 for 20 pro rata accelerated renounceable entitlement offer at $6.05 per share, to bolster the balance sheet. There are management implications to the failure to sell Recall, which would have reduced debt and focused management on its niche. The capital raising is intended to reduce net debt from 2.2 times EBITDA to 1.75 times.
Deutsche has a buy and a price target of $7.50:
BXB terminated the Recall sale process after it failed to yield a bid of sufficient value. It has concurrently announced a 1-for-20 rights issue to strengthen its balance sheet – we now estimate its Net Debt/EBITDA will be in line with the 1.75x target from FY12 (we previously expected this to be the case from FY13). Management has reaffirmed guidance for FY12 but has indicated that challenging conditions are continuing, resulting in minor revisions to EBIT forecasts from FY13 onwards. Price Target reduced to A$7.50ps (-50c) on capital raising dilution and earnings changes.
The stock is on a yield of 4.2%, but only 20% franked. The earnings multiple of 16.2 times, so it is no bargain. But it does offer global exposure.