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3Q23-finc3600代写
时间：2023-08-17
EQ
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IT
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April 20, 2023
Brambles
3Q23 Trading Update - Guidance upgraded further,
incl a return to positive FCF; Outperform
Our view: Brambles (BXB) has delivered another solid trading update,
delivering: (i) 3Q23 sales growth +15% (FYTD +15%); (ii) further upgraded
sales/EBIT guidance; and (iii) improved FCF guidance. The return to positive
FCF implies current earnings growth is outpacing pooling capex, suggesting
returns will widen further as pallet prices moderate into FY24 (RBCe
low-20% ROCI). BXB remains highly flexible and therefore adaptable to
the current uncertain macroeconomic and operating market conditions.
We reiterate our Outperform rating on BXB with our revised A$16.00 PT
implying 18% total return (incl c.3% yield).
Key points:
3Q23 Group sales +15% yoy, flat vs RBCe: Group sales growth was 15%
(yoy, const. fx) for 9mths to March-23, implying c.15% yoy for 3Q23. Driving
the growth was CHEP EMEA at 17%, CHEP Americas at 15% and CHEP Asia-
Pacific at 10%.
FY23 guidance upgraded: (i) Sales revenue to grow between 14-15%
(const. fx, prev was 12-14%), (ii) Underlying profit between 17-19% (const.
fx, prev was 15-18%), (iii) Free cashflow after dividends to be positive
(prev. was for FCF to improve but remain a net outflow). This was consistent
with our prior expectations (refer 'The returns of returns').
Result led by solid operation performance: "Contributions from both
current and prior-year pricing initiatives to recover cost-to-serve increases,
including input-cost inflation and the impact of global supply chain
dynamics, which have driven increased cycle times and pallet prices in all
regions."
Targeting new business as pallet availability improves: BXB has also
stated that "improved pallet availability in the third quarter has enabled
the business to recommence pursuing and developing the new business
pipeline in both the US and Europe" suggesting we may see the return of
incremental volume growth from 4Q23.
Return to positive FCF suggests very positive FY24 to come: In our view
the most important upgrade today was the change in 'Free Cash Flow after
dividends' guidance to "be positive" (was previously "improve on FY22 but
remain a net outflow"). BXB has adequately raised pricing to cover the rising
cost of pooling capex this year. This becomes more meaningful in FY24 as: (i)
positive pricing momentum continues; and (ii) the lagged impact of falling
pallet prices puts downward pressure on pooling capex.
Earnings and valuation revisions: We have upgraded our FY23-25 EBIT
estimates by c.4% to include today's result and guidance. Our 12mth PT
rises c.5% to A$16.00/share.
Royal Bank of Canada, Sydney Branch
Owen Birrell (Analyst)
+61 3 8688 6519, owen.birrell@rbccm.com
Nicholas Daish (Senior Associate)
+61 3 8688 6552, nicholas.daish@rbccm.com
Outperform
ASX: BXB; AUD 13.91
Price Target AUD 16.00 ↑ 15.25
WHAT'S INSIDE
☐ Rating/Risk Change ☑ Price Target Change
☐ In-Depth Report ☑ Est. Change
☐ Preview ☑ News Analysis
Scenario Analysis*
Downside
Scenario
9.50
29%
Current
Price
13.91
Price
Target
16.00
18%
Upside
Scenario
17.50
29%
*Implied Total Returns
Key Statistics
Shares O/S (MM): 1,421.0
Dividend: 0.38
NAVPS: 1.72
Institutional Ownership: 0%
Market Cap (MM): 19,766
Yield: 2.7%
P/NAVPS: 5.43x
Avg. Daily Volume: 4,674,614
RBC Estimates
FY Jun 2022A 2023E 2024E 2025E
Revenue 5,519.8 6,171.0 6,847.8 7,343.4
Prev. 6,052.3 6,613.5 7,093.5
EBIT, Adj 930.0 1,125.0 1,293.7 1,400.8
Prev. 1,078.4 1,244.6 1,348.3
EV/EBIT 17.7x 14.4x 12.2x 11.1x
Prev. 17.8x 15.1x 12.9x 11.8x
Div Yield 2.3% 2.7% 3.4% 3.7%
Priced at ASX close on 20 April 2023.
All market data in AUD; all financial data in USD; dividends paid in AUD.
Priced as of prior trading day's market close, EST (unless otherwise noted).
Disseminated: Apr 20, 2023 04:27EDT; Produced: Apr 20, 2023 04:27EDT
For Required Non-U.S. Analyst and Conflicts Disclosures, see page 6
Brambles
3Q23 Trading Update - Guidance upgraded further, incl a return to positive FCF
Brambles (BXB) has released a 3Q23 Trading Update. Key takeaways:
• 3Q23 Group sales +15% yoy, flat vs RBCe: Group sales growth was 15% (yoy, const. fx) for
9mths to March-23 which was in-line with RBCe. Driving the growth was CHEP EMEA at 17%,
CHEP Americas at 15% and CHEP Asia-Pacific at 10%.
• Guidance upgraded: BXB upgraded its FY23 revenue, earnings and free cash guidance: (i) Sales
revenue to grow between 14-15% (const. fx, prev was 12-14%), (ii) Underlying profit between
17-19% (const. fx, prev was 15-18%), (iii) Free cashflow after dividends to be positive (prev.
was for FCF to improve but remain a net outflow). Lastly, the dividend payout ratio will be
consistent with the dividend payout policy of 45-60% of underlying profit after finance costs
and tax.
By region:
• CHEP Americas - In the 9 months to March-23, sales revenue was +15% (const. fx) due to price
growth of 19%. Overall volumes in the segment were down -4% reflecting a -6% reduction in
like-for-like volumes in the US business partly offset by volume growth with new and existing
customers in Latin America. US volumes declined through softening in underlying consumer
demand, pallet availability in 1H23, some managed loss of flows unsuited to pooled solutions
and progressive optimisation at manufacturers and retailers during 3Q. Despite the overall
volume decline, all key customers have been retained.
• CHEP EMEA - In the 9 months to March-23, sales revenue was +15% (const. fx) due to price
growth of 12% and volume growth of 3%. Net new business growth was +4% driven by
rollover contributions from prior-year contract wins in the European pallet business. Like-for-
like volume was down -1% as pallet availability and softening demand in the European business
was only partly offset by strong growth across European and Northern American automotive
business and IMETA pallet business.
• CHEP Asia-Pacific - In the 9 months to March-23, sales revenue was +10% (const. fx) through
(i) strong price realisation to recover cost to serve increases and (ii) like-for-like volume
growth primarily in the Australian pallet business reflecting increased daily hire revenue from
continued strong demand for pallets across manufacturers and retail supply chains.
Exhibit 1 - BXB 3Q23 Trading update - 9mths to March-23, including implied 3Q23 growth rates
Source: Company release, RBC Capital Market estimates
April 20, 2023 Owen Birrell +61 3 8688 6519; owen.birrell@rbccm.com 2
Income Statement YE Jun 2022 2023E 2024E 2025E Valuation Ratios YE Jun 2022 2023E 2024E 2025E
Revenue (US$m) 5,520 6,171 6,848 7,343 Net Profit (Rept.) (US$m) 593 695 821 899
Op. Costs (US$m) (3,678) (3,935) (4,260) (4,560) Net Profit (Adj.) (US$m) 587 711 821 899
Op. EBITDA (US$m) 1,842 2,236 2,588 2,784 EPS (US¢ps) 41.5 51.2 59.1 64.8
D&A (US$m) (907) (1,106) (1,289) (1,378) EPS (Adj.) Growth (%) 10.4% 23.5% 15.4% 9.5%
Op. EBIT (US$m) 935 1,130 1,299 1,406 Dividend (A¢ps) 32.3 38.2 48.1 51.6
Associates (US$m) (5) (5) (5) (5) Dividend Yield (%) 2.3% 2.7% 3.5% 3.7%
Cons. EBIT (US$m) 930 1,125 1,294 1,401 Franking (%) 30.0% 32.3% 30.0% 30.0%
Net Finance Costs (US$m) (88) (109) (113) (107)
NPBT (Adj.) (US$m) 842 1,016 1,180 1,293 Enterprise Value (US$m) 16,556 16,224 15,874 15,621
Tax Expense (US$m) (255) (305) (360) (394) EV/EBITDA (Adj.) (X) 9.0 7.3 6.1 5.6
Minorities (US$m) - - - - EV/EBIT (Adj.) (X) 17.7 14.4 12.2 11.1
Pref. Dividends (US$m) - - - - PER (Adj.) (X) 23.5 19.0 16.5 15.0
NPAT (Adj.) (US$m) 587 711 821 899 FCF Yield (%) (0.5%) 2.2% 5.0% 5.8%
Adjustments (US$m) 6.2 (15.8) 0.0 0
NPAT (Rept.) (US$m) 593 695 821 899 Divisional Breakdown YE Jun 2022 2023E 2024E 2025E
Sales Growth (%) 6.0% 11.8% 11.0% 7.2% Sales growth (const FX) (% yoy) 8.8% 14.5% 8.2% 5.6%
Op. EBIT Growth (%) 6.8% 20.9% 14.9% 8.2% PBT growth (const FX) (% yoy) 16.6% 21.3% 9.2% 5.7%
NPBT (Adj.) Growth (%) 6.7% 20.6% 16.2% 9.6%
NPAT (Adj.) Growth (%) 5.9% 21.1% 15.4% 9.5% Pallets Americas
Op.EBIT Margin (%) 16.9% 18.3% 19.0% 19.1% Pallet pool (net) (m pallets) 146 146 148 153
NPBT Margin (Adj.) (%) 15.3% 16.5% 17.2% 17.6% Pallet pool growth (%) 2.8% (0.2%) 1.5% 3.5%
Sales growth (const FX) (% yoy) 11.0% 15.0% 9.4% 5.7%
Cash Flow YE Jun 2022 2023E 2024E 2025E Sales growth (reported) (% yoy) 11.0% 16.3% 9.4% 6.0%
Sales revenue (US$m) 2,951 3,433 3,756 3,982
Gross CF (US$m) 1,870 2,212 2,624 2,833 EBITDA (US$m) 1,012 1,294 1,498 1,589
Dividends Received (US$m) - (2) (4) (4) PBT (US$m) 482 586 660 702
Net Interest (Paid) (US$m) (81) (107) (108) (102)
Tax (Paid) (US$m) (204) (222) (242) (277) Pallets EMEA
Other operating (US$m) - - - - Pallet pool (net) (m pallets) 151 161 164 169
Operating CF (US$m) 1,586 1,882 2,270 2,451 Pallet pool growth (%) 6.3% 6.5% 2.2% 2.7%
Capital Expenditure (US$m) (1,652) (1,802) (1,703) (1,898) Sales growth (const FX) (% yoy) 7.0% 15.0% 7.2% 6.0%
Acquisitions/Other (US$m) (20) (6) - - Sales growth (reported) (% yoy) 0.8% 6.8% 13.2% 9.1%
Asset Sales (US$m) 173 322 209 201 Sales revenue (US$m) 2,073 2,213 2,504 2,731
Other investing (US$m) - - - - EBITDA (US$m) 773 867 986 1,076
Investing CF (US$m) (1,500) (1,486) (1,494) (1,696) PBT (US$m) 461 534 609 665
Net Borrowing (US$m) 601 240 - -
Net Share Issue (US$m) (444) - - - Pallets Asia Pac
Dividends (Paid) (US$m) (305) (304) (427) (501) Pallet pool (net) (m pallets) 22 22 22 23
Other Financing (US$m) (182) (52) - - Pallet pool growth (%) (15.4%) 0.8% 1.0% 1.4%
Financing CF (US$m) (329) (116) (427) (501) Sales growth (const FX) (% yoy) 5.0% 9.8% 5.2% 3.5%
Other Non-Cash (US$m) (7) (11) - - Sales growth (reported) (% yoy) (5.6%) 5.8% 11.9% 7.2%
Net Chg In Cash (US$m) (250) 269 349 254 Sales revenue (US$m) 497 525 588 630
EBITDA (US$m) 234 254 279 299
Op. FCF to Equity (US$m) (70) 293 677 793 PBT (US$m) 169 188 205 219
Gross CF / Op. EBITDA (X) 1.0x 1.0x 1.0x 1.0x
Total Capex / Sales (%) 29.9% 29.2% 24.9% 25.8% Pooling Capex (US$m) 1,644 1,589 1,593 1,658
Total Capex / D&A (X) 1.8x 1.6x 1.3x 1.4x Gross Capex (US$m) 1,652 1,802 1,703 1,898
Capex (net of asset sales) (US$m) 1,480 1,612 1,494 1,696
Distributions YE Jun 2022 2023E 2024E 2025E Pooling Capex/Sales % 30.0% 25.7% 23.3% 22.6%
Earnings per share (US¢ps) 41.5 51.2 59.1 64.8
Dividend per share (US¢ps) 23.5 25.1 34.2 37.4 RBC Forward Valuation
Payout ratio (%) 57% 49% 58% 58%
Balance Sheet YE Jun 2022 2023E 2024E 2025E
A$m A$/share A$m A$/share
Cash (US$m) 158 427 776 1,030 Pallets Americas 10,493 7.53 13,850 9.94
PP&E (US$m) 5,526 5,881 6,124 6,480 Pallets EMEA 12,319 8.84 10,473 7.52
Total Assets (US$m) 7,932 8,699 9,373 10,037 Pallets Asia Pac 4,109 2.95 5,286 3.80
Debt (incl lease liabilities) (US$m) 2,876 3,088 3,088 3,088 Corporate Costs (3,652) (2.62) (3,542) (2.54)
Total Liabilities (US$m) 5,481 5,916 6,243 6,528 Asset Value 23,270 16.71 26,066 18.71
Total Equity (US$m) 2,451 2,783 3,130 3,509 avg multiple/WACC 11.6 7.4%
Net Debt (US$m) 2,717 2,660 2,311 2,057 Investments (Book value) 240 0.17 240 0.17
Net Debt / EBITDA (X) 1.5x 1.2x 0.9x 0.7 Net Cash/(Debt) (2,898) (2.08) (2,898) (2.08)
Net Debt / (D+E) (%) 53% 49% 42% 37% Equity Value (1yr fwd) 20,611 14.80 23,408 16.80
Sales/Assets (X) 0.7x 0.7x 0.7x 0.7
Return on Equity (%) 24.0% 25.5% 26.2% 25.6% Rounded Price Target (50% SOTP; 50% NPV, A$ ps) 16.00
Int Cover (EBIT) (X) 10.6x 10.3x 11.5x 13.1 Current Price 13.91
Avg. Shares (Diluted) (m) 1,421 1,393 1,393 1,393 Implied upside/(downside) 15.0%
Source: Company reports; RBC Capital Markets estimates
Short term Long term
(fwd SOTP) (fwd NPV)
Brambles
669256_bd50647e-be87-414e-946a-5d38adb8c79b.pdf
April 20, 2023 Owen Birrell +61 3 8688 6519; owen.birrell@rbccm.com 3
Brambles
Key fundamental questions
Our view
What is the forward sales and
earnings trajectory?
BXB is currently guiding to FY23 sales revenue growth of between 14-15% yoy (const
FX) and underlying profit growth of 17-19% yoy. The sales trajectory is driven by
pricing in all regions and the groups ability to recover cost-to-serve.
What is the transformation
investment planned?
BXB has slated up to US$1.1bn in opex and capex for its next stage of ‘accelerated
transformation (FY22+)' and is targeting a >15% ROCI. FY22-23 comprises c.US
$400m associated with short-term transformation, digital platform investment and
supply-chain initiatives (incl. automation). The remaining c.US$600m (FY24-25) is
indicative, and ‘gated’ based on successful outcomes.
How has CHEP Americas ROCI been
recently and what is the outlook?
ROCI in CHEP Americas increased in 1H23 to 19.2% vs 17.8% (const currency) in
1H22. Strong profit growth was partly offset by a 17% increase in average capital
invested, reflective of the impact of lumber inflation on the per unit cost of pallets
purchased during the prior 12 months.
Describe the corporate balance sheet
and liquidity position.
At Dec-22, net debt was US$2,900m, rising by US$183m from June-22. Net debt
increased by US$183m reflecting funding of US$(147m) for free cashflow after
dividends outflow and FX movements. The group has undrawn debt of US$1.0bn
and cash of US$188m. Additionally, no bonds mature until June-24.
Key ESG questions
This section is intended to highlight key ESG discussion points relevant to this company, as well as our views on the outlook. Both the questions
we highlight and our responses will evolve over time as the dialogue between management, analysts and investors continues to advance. We
welcome any feedback on the topics.
Our view
What are the most material ESG issues
facing BXB?
BXB claims it is 'the global leader in sustainable logistics' and 'one of the world's
most sustainable logistics businesses', as it facilitates the 'share and reuse' of the
world's largest pool of reusable pallets and containers. The current focus remains
on: (i) eliminating waste; (ii) eradicating empty transport miles; and (iii) reducing
inefficiencies.
Does BXB integrate ESG
considerations into its strategy?
BXB seeks to: (i) achieve and maintain ESG leadership in each region; (ii) lead
the industry in customer service, innovation and sustainability; and (iii) be an
employer of choice through best-in-class safety, diversity and talent development
programmes.
What is diversity like at the board /
management level?
The BXB board comprises eleven members in total, four of which are female. Both
CEO Graham Chipchase and CFO Nessa O'Sullivan are on the board, with the other
eight being independent and non-executive. Of the fourteen people in the executive
leadership team, five are female.
April 20, 2023 Owen Birrell +61 3 8688 6519; owen.birrell@rbccm.com 4
Brambles
Target/Upside/Downside Scenarios
Brambles
60m
40m
20m
N D J F M A M J J A S O N
2021
D J F M A M J J A S O N
2022
D J F M
2023
A
CURRENT 13.91
TARGET 16.00
18
16
14
12
10
8
6
125 Weeks 27NOV20 - 20APR23
BXB AU Rel. AUSTRALIAN ALL ORDINAIRES MA 40 weeks
Source: Bloomberg and RBC Capital Markets estimates for Target
Valuation
Our 12-month price target of A$16.00/share employs a
50% short-term (fwd-SOTP) and 50% long-term (fwd-NPV)
valuation mix, rounded up to the nearest 50c. Our fwd-SOTP
valuation of A$14.80/share applies 1yr forward peer average
multiples to our 2yr EBIT forecasts by division. Our fwd-NPV
of A$16.80/share discounts the future cashflows using a long-
term WACC of 7.4% (terminal growth rate 2.5%). Our price
target supports our Outperform rating.
Upside scenario
Our upside valuation scenario of A$17.50/share is based on a
200bp increase to our RBC sales growth assumptions (through
price) across all regions.
Downside scenario
Our downside valuation scenario of A$9.50/share is based
on a 200bp decrease to our RBC sales growth assumptions
(through price) across all regions, and decision not to proceed
with Costco.
Investment summary
Brambles (BXB) continues to manage its business for both
near-term uncertainty, and to deliver long-term structural
improvement. The past 5 years have seen a major restructure
of the operating model, gross margins were insulated,
and operating leverage added through process efficiency
investment and fixed-cost reductions. Cashflow conversion
has also improved given the increased focus on asset
utilization and capital efficiency. Underpinned by a further US
$1.1bn 5-year programme of investment, we expect sales and
earnings growth to continue.
Risks to rating and price target
Regional economic growth - Demand for pallets is tied to
the movement of consumer staples, which is underpinned by
that region's economic growth. Any slowdown in consumer
demand will reduce the demand for pallets.
Market share loss - BXB operates within highly competitive
markets; any loss of share to competitors has the effect of
slowing volume growth and can cause the pool to become
unbalanced. We highlight the shift by Costco to a plastic pool
in the US could see CHEP Americas lose share and force actions
to restabilise the timber pallet pool.
Price pressures on margins - Achieving ongoing unit price
growth is a key mechanism to offset any underlying cost
inflation and maintain/grow margins. Recent changes in price
contracts to add indexation clauses/ surcharges has served to
insulate and stabilise gross margins.
Supply-side constraints and cost inflation - Overarching
supply-side constraints and subsequent cost inflation (labour,
lumber, transport) can impact the efficient operation of the
pool and have a major detrimental impact on gross margins.
Loss of pallets and capex escalation - BXB must maintain
strict control over the stability of the pallet pool to ensure
efficient cashflow conversion of underlying earnings. This
conversion can be disrupted by any material loss of pallets
and/or escalation in pooling capex.
April 20, 2023 Owen Birrell +61 3 8688 6519; owen.birrell@rbccm.com 5
Brambles
Company description
Brambles (BXB) is an Australian materials handling company established in 1877. Its primary subsidiary CHEP is the largest provider
of high-quality pooled pallets and container products across the Americas, EMEA and the Asia Pacific regions. CHEP offers wooden
and plastic pallets, small display pallets, crates and IBC containers. Pooling has very high barriers to entry (including significant
upfront capital investment), which has allowed CHEP to entrench its market-leading position. Its established logistics platform,
service centre network, international reach and scale advantage enable it to deliver a service advantage and maintain its long-
established relationships with core customers across industrial and retail supply chains.
Required disclosures
Non-U.S. analyst disclosure
One or more research analysts involved in the preparation of this report (i) may not be registered/qualified as research analysts
with the NYSE and/or FINRA and (ii) may not be associated persons of the RBC Capital Markets, LLC and therefore may not be
subject to FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities
held by a research analyst account.
Conflicts disclosures
The analyst(s) responsible for preparing this research report received compensation that is based upon various factors, including
total revenues of the member companies of RBC Capital Markets and its affiliates, a portion of which are or have been generated
by investment banking activities of the member companies of RBC Capital Markets and its affiliates.
With regard to the MAR investment recommendation requirements in relation to relevant securities, a member company of Royal
Bank of Canada, together with its affiliates, may have a net long or short financial interest in excess of 0.5% of the total issued
share capital of the entities mentioned in the investment recommendation. Information relating to this is available upon request
from your RBC investment advisor or institutional salesperson.
Please note that current conflicts disclosures may differ from those as of the publication date on, and as set forth in,
this report. To access current conflicts disclosures, clients should refer to https://www.rbccm.com/GLDisclosure/PublicWeb/
DisclosureLookup.aspx?entityId=1 or send a request to RBC CM Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza,
29th Floor, South Tower, Toronto, Ontario M5J 2W7.
Explanation of RBC Capital Markets Equity rating system
An analyst's 'sector' is the universe of companies for which the analyst provides research coverage. Accordingly, the rating assigned
to a particular stock represents solely the analyst's view of how that stock will perform over the next 12 months relative to the
analyst's sector average.
Ratings
Outperform (O): Expected to materially outperform sector average over 12 months.
Sector Perform (SP): Returns expected to be in line with sector average over 12 months.
Underperform (U): Returns expected to be materially below sector average over 12 months.
Restricted (R): RBC policy precludes certain types of communications, including an investment recommendation, when RBC is
acting as an advisor in certain merger or other strategic transactions and in certain other circumstances.
Not Rated (NR): The rating, price targets and estimates have been removed due to applicable legal, regulatory or policy constraints
which may include when RBC Capital Markets is acting in an advisory capacity involving the company.
Risk Rating
The Speculative risk rating reflects a security's lower level of financial or operating predictability, illiquid share trading volumes,
high balance sheet leverage, or limited operating history that result in a higher expectation of financial and/or stock price volatility.
April 20, 2023 Owen Birrell +61 3 8688 6519; owen.birrell@rbccm.com 6
Brambles
Distribution of ratings
For the purpose of ratings distributions, regulatory rules require member firms to assign ratings to one of three rating categories -
Buy, Hold/Neutral, or Sell - regardless of a firm's own rating categories. Although RBC Capital Markets' ratings of Outperform (O),
Sector Perform (SP), and Underperform (U) most closely correspond to Buy, Hold/Neutral and Sell, respectively, the meanings are
not the same because our ratings are determined on a relative basis.
Distribution of ratings
RBC Capital Markets, Equity Research
As of 31-Mar-2023
Investment Banking
Serv./Past 12 Mos.
Rating Count Percent Count Percent
BUY [Outperform] 824 56.05 236 28.64
HOLD [Sector Perform] 591 40.20 132 22.34
SELL [Underperform] 55 3.74 4 7.27
Rating and price target history for: Brambles Limited, BXB AU as of 19-Apr-2023 (in AUD)
15
14
13
12
11
10
9
Q1 Q2 Q3 2021 Q1 Q2 Q3 2022 Q1 Q2 Q3 2023 Q1 Q2
24-Jan-2022
Rtg:I:O
Target: 12.70
28-Feb-2022
Rtg:O
Target: 13.00
20-Apr-2022
Rtg:O
Target: 13.50
05-May-2022
Rtg:O
Target: 14.00
30-Jun-2022
Rtg:O
Target: 13.00
17-Aug-2022
Rtg:O
Target: 13.75
18-Oct-2022
Rtg:O
Target: 14.00
24-Feb-2023
Rtg:O
Target: 15.25
Legend:
TP: Top Pick; O: Outperform; SP: Sector Perform; U: Underperform; R: Restricted; I: Initiation of Research Coverage; D: Discontinuation of Research Coverage;
NR: Not Rated; NA: Not Available; RL: Recommended List - RL: On: Refers to date a security was placed on a recommended list, while RL Off: Refers to date
a security was removed from a recommended list; Rtg: Rating.
Created by: BlueMatrix
References to a Recommended List in the recommendation history chart may include one or more recommended lists or model
portfolios maintained by RBC Wealth Management or one of its affiliates. RBC Wealth Management recommended lists include
the Guided Portfolio: Prime Income (RL 6), the Guided Portfolio: Dividend Growth (RL 8), the Guided Portfolio: ADR (RL 10), and
the Guided Portfolio: All Cap Growth (RL 12). The abbreviation 'RL On' means the date a security was placed on a Recommended
List. The abbreviation 'RL Off' means the date a security was removed from a Recommended List. As of April 3, 2023, U.S. RBC
Wealth Management's quarterly reports will serve as the primary communication for its models and will highlight any changes
to the model made during the quarter.
Equity valuation and risks
For valuation methods used to determine, and risks that may impede achievement of, price targets for covered companies, please
see the most recent company-specific research report at www.rbcinsightresearch.com or send a request to RBC Capital Markets
Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7.
Brambles Limited
Valuation
Our 12-month price target of A$16.00/share employs a 50% short-term (fwd-SOTP) and 50% long-term (fwd-NPV) valuation mix,
rounded up to the nearest 50c. Our fwd-SOTP valuation of A$14.80/share applies 1yr forward peer average multiples to our 2yr
EBIT forecasts by division. Our fwd-NPV of A$16.80/share discounts the future cashflows using a long-term WACC of 7.4% (terminal
April 20, 2023 Owen Birrell +61 3 8688 6519; owen.birrell@rbccm.com 7
Brambles
growth rate 2.5%). Our price target supports our Outperform rating.
Risks to rating and price target
Regional economic growth - Demand for pallets is tied to the movement of consumer staples, which is underpinned by that
region's economic growth. Any slowdown in consumer demand will reduce the demand for pallets.
Market share loss - BXB operates within highly competitive markets; any loss of share to competitors has the effect of slowing
volume growth and can cause the pool to become unbalanced. We highlight the shift by Costco to a plastic pool in the US could
see CHEP Americas lose share and force actions to restabilise the timber pallet pool.
Price pressures on margins - Achieving ongoing unit price growth is a key mechanism to offset any underlying cost inflation and
maintain/grow margins. Recent changes in price contracts to add indexation clauses/ surcharges has served to insulate and stabilise
gross margins.
Supply-side constraints and cost inflation - Overarching supply-side constraints and subsequent cost inflation (labour, lumber,
transport) can impact the efficient operation of the pool and have a major detrimental impact on gross margins.
Loss of pallets and capex escalation - BXB must maintain strict control over the stability of the pallet pool to ensure efficient
cashflow conversion of underlying earnings. This conversion can be disrupted by any material loss of pallets and/or escalation in
pooling capex.
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April 20, 2023 Owen Birrell +61 3 8688 6519; owen.birrell@rbccm.com 8
Brambles
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April 20, 2023 Owen Birrell +61 3 8688 6519; owen.birrell@rbccm.com 9
Brambles
All rights reserved
April 20, 2023 Owen Birrell +61 3 8688 6519; owen.birrell@rbccm.com 10
U
IT
Y
RE
SE
AR
CH
April 20, 2023
Brambles
3Q23 Trading Update - Guidance upgraded further,
incl a return to positive FCF; Outperform
Our view: Brambles (BXB) has delivered another solid trading update,
delivering: (i) 3Q23 sales growth +15% (FYTD +15%); (ii) further upgraded
sales/EBIT guidance; and (iii) improved FCF guidance. The return to positive
FCF implies current earnings growth is outpacing pooling capex, suggesting
returns will widen further as pallet prices moderate into FY24 (RBCe
low-20% ROCI). BXB remains highly flexible and therefore adaptable to
the current uncertain macroeconomic and operating market conditions.
We reiterate our Outperform rating on BXB with our revised A$16.00 PT
implying 18% total return (incl c.3% yield).
Key points:
3Q23 Group sales +15% yoy, flat vs RBCe: Group sales growth was 15%
(yoy, const. fx) for 9mths to March-23, implying c.15% yoy for 3Q23. Driving
the growth was CHEP EMEA at 17%, CHEP Americas at 15% and CHEP Asia-
Pacific at 10%.
FY23 guidance upgraded: (i) Sales revenue to grow between 14-15%
(const. fx, prev was 12-14%), (ii) Underlying profit between 17-19% (const.
fx, prev was 15-18%), (iii) Free cashflow after dividends to be positive
(prev. was for FCF to improve but remain a net outflow). This was consistent
with our prior expectations (refer 'The returns of returns').
Result led by solid operation performance: "Contributions from both
current and prior-year pricing initiatives to recover cost-to-serve increases,
including input-cost inflation and the impact of global supply chain
dynamics, which have driven increased cycle times and pallet prices in all
regions."
Targeting new business as pallet availability improves: BXB has also
stated that "improved pallet availability in the third quarter has enabled
the business to recommence pursuing and developing the new business
pipeline in both the US and Europe" suggesting we may see the return of
incremental volume growth from 4Q23.
Return to positive FCF suggests very positive FY24 to come: In our view
the most important upgrade today was the change in 'Free Cash Flow after
dividends' guidance to "be positive" (was previously "improve on FY22 but
remain a net outflow"). BXB has adequately raised pricing to cover the rising
cost of pooling capex this year. This becomes more meaningful in FY24 as: (i)
positive pricing momentum continues; and (ii) the lagged impact of falling
pallet prices puts downward pressure on pooling capex.
Earnings and valuation revisions: We have upgraded our FY23-25 EBIT
estimates by c.4% to include today's result and guidance. Our 12mth PT
rises c.5% to A$16.00/share.
Royal Bank of Canada, Sydney Branch
Owen Birrell (Analyst)
+61 3 8688 6519, owen.birrell@rbccm.com
Nicholas Daish (Senior Associate)
+61 3 8688 6552, nicholas.daish@rbccm.com
Outperform
ASX: BXB; AUD 13.91
Price Target AUD 16.00 ↑ 15.25
WHAT'S INSIDE
☐ Rating/Risk Change ☑ Price Target Change
☐ In-Depth Report ☑ Est. Change
☐ Preview ☑ News Analysis
Scenario Analysis*
Downside
Scenario
9.50
29%
Current
Price
13.91
Price
Target
16.00
18%
Upside
Scenario
17.50
29%
*Implied Total Returns
Key Statistics
Shares O/S (MM): 1,421.0
Dividend: 0.38
NAVPS: 1.72
Institutional Ownership: 0%
Market Cap (MM): 19,766
Yield: 2.7%
P/NAVPS: 5.43x
Avg. Daily Volume: 4,674,614
RBC Estimates
FY Jun 2022A 2023E 2024E 2025E
Revenue 5,519.8 6,171.0 6,847.8 7,343.4
Prev. 6,052.3 6,613.5 7,093.5
EBIT, Adj 930.0 1,125.0 1,293.7 1,400.8
Prev. 1,078.4 1,244.6 1,348.3
EV/EBIT 17.7x 14.4x 12.2x 11.1x
Prev. 17.8x 15.1x 12.9x 11.8x
Div Yield 2.3% 2.7% 3.4% 3.7%
Priced at ASX close on 20 April 2023.
All market data in AUD; all financial data in USD; dividends paid in AUD.
Priced as of prior trading day's market close, EST (unless otherwise noted).
Disseminated: Apr 20, 2023 04:27EDT; Produced: Apr 20, 2023 04:27EDT
For Required Non-U.S. Analyst and Conflicts Disclosures, see page 6
Brambles
3Q23 Trading Update - Guidance upgraded further, incl a return to positive FCF
Brambles (BXB) has released a 3Q23 Trading Update. Key takeaways:
• 3Q23 Group sales +15% yoy, flat vs RBCe: Group sales growth was 15% (yoy, const. fx) for
9mths to March-23 which was in-line with RBCe. Driving the growth was CHEP EMEA at 17%,
CHEP Americas at 15% and CHEP Asia-Pacific at 10%.
• Guidance upgraded: BXB upgraded its FY23 revenue, earnings and free cash guidance: (i) Sales
revenue to grow between 14-15% (const. fx, prev was 12-14%), (ii) Underlying profit between
17-19% (const. fx, prev was 15-18%), (iii) Free cashflow after dividends to be positive (prev.
was for FCF to improve but remain a net outflow). Lastly, the dividend payout ratio will be
consistent with the dividend payout policy of 45-60% of underlying profit after finance costs
and tax.
By region:
• CHEP Americas - In the 9 months to March-23, sales revenue was +15% (const. fx) due to price
growth of 19%. Overall volumes in the segment were down -4% reflecting a -6% reduction in
like-for-like volumes in the US business partly offset by volume growth with new and existing
customers in Latin America. US volumes declined through softening in underlying consumer
demand, pallet availability in 1H23, some managed loss of flows unsuited to pooled solutions
and progressive optimisation at manufacturers and retailers during 3Q. Despite the overall
volume decline, all key customers have been retained.
• CHEP EMEA - In the 9 months to March-23, sales revenue was +15% (const. fx) due to price
growth of 12% and volume growth of 3%. Net new business growth was +4% driven by
rollover contributions from prior-year contract wins in the European pallet business. Like-for-
like volume was down -1% as pallet availability and softening demand in the European business
was only partly offset by strong growth across European and Northern American automotive
business and IMETA pallet business.
• CHEP Asia-Pacific - In the 9 months to March-23, sales revenue was +10% (const. fx) through
(i) strong price realisation to recover cost to serve increases and (ii) like-for-like volume
growth primarily in the Australian pallet business reflecting increased daily hire revenue from
continued strong demand for pallets across manufacturers and retail supply chains.
Exhibit 1 - BXB 3Q23 Trading update - 9mths to March-23, including implied 3Q23 growth rates
Source: Company release, RBC Capital Market estimates
April 20, 2023 Owen Birrell +61 3 8688 6519; owen.birrell@rbccm.com 2
Income Statement YE Jun 2022 2023E 2024E 2025E Valuation Ratios YE Jun 2022 2023E 2024E 2025E
Revenue (US$m) 5,520 6,171 6,848 7,343 Net Profit (Rept.) (US$m) 593 695 821 899
Op. Costs (US$m) (3,678) (3,935) (4,260) (4,560) Net Profit (Adj.) (US$m) 587 711 821 899
Op. EBITDA (US$m) 1,842 2,236 2,588 2,784 EPS (US¢ps) 41.5 51.2 59.1 64.8
D&A (US$m) (907) (1,106) (1,289) (1,378) EPS (Adj.) Growth (%) 10.4% 23.5% 15.4% 9.5%
Op. EBIT (US$m) 935 1,130 1,299 1,406 Dividend (A¢ps) 32.3 38.2 48.1 51.6
Associates (US$m) (5) (5) (5) (5) Dividend Yield (%) 2.3% 2.7% 3.5% 3.7%
Cons. EBIT (US$m) 930 1,125 1,294 1,401 Franking (%) 30.0% 32.3% 30.0% 30.0%
Net Finance Costs (US$m) (88) (109) (113) (107)
NPBT (Adj.) (US$m) 842 1,016 1,180 1,293 Enterprise Value (US$m) 16,556 16,224 15,874 15,621
Tax Expense (US$m) (255) (305) (360) (394) EV/EBITDA (Adj.) (X) 9.0 7.3 6.1 5.6
Minorities (US$m) - - - - EV/EBIT (Adj.) (X) 17.7 14.4 12.2 11.1
Pref. Dividends (US$m) - - - - PER (Adj.) (X) 23.5 19.0 16.5 15.0
NPAT (Adj.) (US$m) 587 711 821 899 FCF Yield (%) (0.5%) 2.2% 5.0% 5.8%
Adjustments (US$m) 6.2 (15.8) 0.0 0
NPAT (Rept.) (US$m) 593 695 821 899 Divisional Breakdown YE Jun 2022 2023E 2024E 2025E
Sales Growth (%) 6.0% 11.8% 11.0% 7.2% Sales growth (const FX) (% yoy) 8.8% 14.5% 8.2% 5.6%
Op. EBIT Growth (%) 6.8% 20.9% 14.9% 8.2% PBT growth (const FX) (% yoy) 16.6% 21.3% 9.2% 5.7%
NPBT (Adj.) Growth (%) 6.7% 20.6% 16.2% 9.6%
NPAT (Adj.) Growth (%) 5.9% 21.1% 15.4% 9.5% Pallets Americas
Op.EBIT Margin (%) 16.9% 18.3% 19.0% 19.1% Pallet pool (net) (m pallets) 146 146 148 153
NPBT Margin (Adj.) (%) 15.3% 16.5% 17.2% 17.6% Pallet pool growth (%) 2.8% (0.2%) 1.5% 3.5%
Sales growth (const FX) (% yoy) 11.0% 15.0% 9.4% 5.7%
Cash Flow YE Jun 2022 2023E 2024E 2025E Sales growth (reported) (% yoy) 11.0% 16.3% 9.4% 6.0%
Sales revenue (US$m) 2,951 3,433 3,756 3,982
Gross CF (US$m) 1,870 2,212 2,624 2,833 EBITDA (US$m) 1,012 1,294 1,498 1,589
Dividends Received (US$m) - (2) (4) (4) PBT (US$m) 482 586 660 702
Net Interest (Paid) (US$m) (81) (107) (108) (102)
Tax (Paid) (US$m) (204) (222) (242) (277) Pallets EMEA
Other operating (US$m) - - - - Pallet pool (net) (m pallets) 151 161 164 169
Operating CF (US$m) 1,586 1,882 2,270 2,451 Pallet pool growth (%) 6.3% 6.5% 2.2% 2.7%
Capital Expenditure (US$m) (1,652) (1,802) (1,703) (1,898) Sales growth (const FX) (% yoy) 7.0% 15.0% 7.2% 6.0%
Acquisitions/Other (US$m) (20) (6) - - Sales growth (reported) (% yoy) 0.8% 6.8% 13.2% 9.1%
Asset Sales (US$m) 173 322 209 201 Sales revenue (US$m) 2,073 2,213 2,504 2,731
Other investing (US$m) - - - - EBITDA (US$m) 773 867 986 1,076
Investing CF (US$m) (1,500) (1,486) (1,494) (1,696) PBT (US$m) 461 534 609 665
Net Borrowing (US$m) 601 240 - -
Net Share Issue (US$m) (444) - - - Pallets Asia Pac
Dividends (Paid) (US$m) (305) (304) (427) (501) Pallet pool (net) (m pallets) 22 22 22 23
Other Financing (US$m) (182) (52) - - Pallet pool growth (%) (15.4%) 0.8% 1.0% 1.4%
Financing CF (US$m) (329) (116) (427) (501) Sales growth (const FX) (% yoy) 5.0% 9.8% 5.2% 3.5%
Other Non-Cash (US$m) (7) (11) - - Sales growth (reported) (% yoy) (5.6%) 5.8% 11.9% 7.2%
Net Chg In Cash (US$m) (250) 269 349 254 Sales revenue (US$m) 497 525 588 630
EBITDA (US$m) 234 254 279 299
Op. FCF to Equity (US$m) (70) 293 677 793 PBT (US$m) 169 188 205 219
Gross CF / Op. EBITDA (X) 1.0x 1.0x 1.0x 1.0x
Total Capex / Sales (%) 29.9% 29.2% 24.9% 25.8% Pooling Capex (US$m) 1,644 1,589 1,593 1,658
Total Capex / D&A (X) 1.8x 1.6x 1.3x 1.4x Gross Capex (US$m) 1,652 1,802 1,703 1,898
Capex (net of asset sales) (US$m) 1,480 1,612 1,494 1,696
Distributions YE Jun 2022 2023E 2024E 2025E Pooling Capex/Sales % 30.0% 25.7% 23.3% 22.6%
Earnings per share (US¢ps) 41.5 51.2 59.1 64.8
Dividend per share (US¢ps) 23.5 25.1 34.2 37.4 RBC Forward Valuation
Payout ratio (%) 57% 49% 58% 58%
Balance Sheet YE Jun 2022 2023E 2024E 2025E
A$m A$/share A$m A$/share
Cash (US$m) 158 427 776 1,030 Pallets Americas 10,493 7.53 13,850 9.94
PP&E (US$m) 5,526 5,881 6,124 6,480 Pallets EMEA 12,319 8.84 10,473 7.52
Total Assets (US$m) 7,932 8,699 9,373 10,037 Pallets Asia Pac 4,109 2.95 5,286 3.80
Debt (incl lease liabilities) (US$m) 2,876 3,088 3,088 3,088 Corporate Costs (3,652) (2.62) (3,542) (2.54)
Total Liabilities (US$m) 5,481 5,916 6,243 6,528 Asset Value 23,270 16.71 26,066 18.71
Total Equity (US$m) 2,451 2,783 3,130 3,509 avg multiple/WACC 11.6 7.4%
Net Debt (US$m) 2,717 2,660 2,311 2,057 Investments (Book value) 240 0.17 240 0.17
Net Debt / EBITDA (X) 1.5x 1.2x 0.9x 0.7 Net Cash/(Debt) (2,898) (2.08) (2,898) (2.08)
Net Debt / (D+E) (%) 53% 49% 42% 37% Equity Value (1yr fwd) 20,611 14.80 23,408 16.80
Sales/Assets (X) 0.7x 0.7x 0.7x 0.7
Return on Equity (%) 24.0% 25.5% 26.2% 25.6% Rounded Price Target (50% SOTP; 50% NPV, A$ ps) 16.00
Int Cover (EBIT) (X) 10.6x 10.3x 11.5x 13.1 Current Price 13.91
Avg. Shares (Diluted) (m) 1,421 1,393 1,393 1,393 Implied upside/(downside) 15.0%
Source: Company reports; RBC Capital Markets estimates
Short term Long term
(fwd SOTP) (fwd NPV)
Brambles
669256_bd50647e-be87-414e-946a-5d38adb8c79b.pdf
April 20, 2023 Owen Birrell +61 3 8688 6519; owen.birrell@rbccm.com 3
Brambles
Key fundamental questions
Our view
What is the forward sales and
earnings trajectory?
BXB is currently guiding to FY23 sales revenue growth of between 14-15% yoy (const
FX) and underlying profit growth of 17-19% yoy. The sales trajectory is driven by
pricing in all regions and the groups ability to recover cost-to-serve.
What is the transformation
investment planned?
BXB has slated up to US$1.1bn in opex and capex for its next stage of ‘accelerated
transformation (FY22+)' and is targeting a >15% ROCI. FY22-23 comprises c.US
$400m associated with short-term transformation, digital platform investment and
supply-chain initiatives (incl. automation). The remaining c.US$600m (FY24-25) is
indicative, and ‘gated’ based on successful outcomes.
How has CHEP Americas ROCI been
recently and what is the outlook?
ROCI in CHEP Americas increased in 1H23 to 19.2% vs 17.8% (const currency) in
1H22. Strong profit growth was partly offset by a 17% increase in average capital
invested, reflective of the impact of lumber inflation on the per unit cost of pallets
purchased during the prior 12 months.
Describe the corporate balance sheet
and liquidity position.
At Dec-22, net debt was US$2,900m, rising by US$183m from June-22. Net debt
increased by US$183m reflecting funding of US$(147m) for free cashflow after
dividends outflow and FX movements. The group has undrawn debt of US$1.0bn
and cash of US$188m. Additionally, no bonds mature until June-24.
Key ESG questions
This section is intended to highlight key ESG discussion points relevant to this company, as well as our views on the outlook. Both the questions
we highlight and our responses will evolve over time as the dialogue between management, analysts and investors continues to advance. We
welcome any feedback on the topics.
Our view
What are the most material ESG issues
facing BXB?
BXB claims it is 'the global leader in sustainable logistics' and 'one of the world's
most sustainable logistics businesses', as it facilitates the 'share and reuse' of the
world's largest pool of reusable pallets and containers. The current focus remains
on: (i) eliminating waste; (ii) eradicating empty transport miles; and (iii) reducing
inefficiencies.
Does BXB integrate ESG
considerations into its strategy?
BXB seeks to: (i) achieve and maintain ESG leadership in each region; (ii) lead
the industry in customer service, innovation and sustainability; and (iii) be an
employer of choice through best-in-class safety, diversity and talent development
programmes.
What is diversity like at the board /
management level?
The BXB board comprises eleven members in total, four of which are female. Both
CEO Graham Chipchase and CFO Nessa O'Sullivan are on the board, with the other
eight being independent and non-executive. Of the fourteen people in the executive
leadership team, five are female.
April 20, 2023 Owen Birrell +61 3 8688 6519; owen.birrell@rbccm.com 4
Brambles
Target/Upside/Downside Scenarios
Brambles
60m
40m
20m
N D J F M A M J J A S O N
2021
D J F M A M J J A S O N
2022
D J F M
2023
A
CURRENT 13.91
TARGET 16.00
18
16
14
12
10
8
6
125 Weeks 27NOV20 - 20APR23
BXB AU Rel. AUSTRALIAN ALL ORDINAIRES MA 40 weeks
Source: Bloomberg and RBC Capital Markets estimates for Target
Valuation
Our 12-month price target of A$16.00/share employs a
50% short-term (fwd-SOTP) and 50% long-term (fwd-NPV)
valuation mix, rounded up to the nearest 50c. Our fwd-SOTP
valuation of A$14.80/share applies 1yr forward peer average
multiples to our 2yr EBIT forecasts by division. Our fwd-NPV
of A$16.80/share discounts the future cashflows using a long-
term WACC of 7.4% (terminal growth rate 2.5%). Our price
target supports our Outperform rating.
Upside scenario
Our upside valuation scenario of A$17.50/share is based on a
200bp increase to our RBC sales growth assumptions (through
price) across all regions.
Downside scenario
Our downside valuation scenario of A$9.50/share is based
on a 200bp decrease to our RBC sales growth assumptions
(through price) across all regions, and decision not to proceed
with Costco.
Investment summary
Brambles (BXB) continues to manage its business for both
near-term uncertainty, and to deliver long-term structural
improvement. The past 5 years have seen a major restructure
of the operating model, gross margins were insulated,
and operating leverage added through process efficiency
investment and fixed-cost reductions. Cashflow conversion
has also improved given the increased focus on asset
utilization and capital efficiency. Underpinned by a further US
$1.1bn 5-year programme of investment, we expect sales and
earnings growth to continue.
Risks to rating and price target
Regional economic growth - Demand for pallets is tied to
the movement of consumer staples, which is underpinned by
that region's economic growth. Any slowdown in consumer
demand will reduce the demand for pallets.
Market share loss - BXB operates within highly competitive
markets; any loss of share to competitors has the effect of
slowing volume growth and can cause the pool to become
unbalanced. We highlight the shift by Costco to a plastic pool
in the US could see CHEP Americas lose share and force actions
to restabilise the timber pallet pool.
Price pressures on margins - Achieving ongoing unit price
growth is a key mechanism to offset any underlying cost
inflation and maintain/grow margins. Recent changes in price
contracts to add indexation clauses/ surcharges has served to
insulate and stabilise gross margins.
Supply-side constraints and cost inflation - Overarching
supply-side constraints and subsequent cost inflation (labour,
lumber, transport) can impact the efficient operation of the
pool and have a major detrimental impact on gross margins.
Loss of pallets and capex escalation - BXB must maintain
strict control over the stability of the pallet pool to ensure
efficient cashflow conversion of underlying earnings. This
conversion can be disrupted by any material loss of pallets
and/or escalation in pooling capex.
April 20, 2023 Owen Birrell +61 3 8688 6519; owen.birrell@rbccm.com 5
Brambles
Company description
Brambles (BXB) is an Australian materials handling company established in 1877. Its primary subsidiary CHEP is the largest provider
of high-quality pooled pallets and container products across the Americas, EMEA and the Asia Pacific regions. CHEP offers wooden
and plastic pallets, small display pallets, crates and IBC containers. Pooling has very high barriers to entry (including significant
upfront capital investment), which has allowed CHEP to entrench its market-leading position. Its established logistics platform,
service centre network, international reach and scale advantage enable it to deliver a service advantage and maintain its long-
established relationships with core customers across industrial and retail supply chains.
Required disclosures
Non-U.S. analyst disclosure
One or more research analysts involved in the preparation of this report (i) may not be registered/qualified as research analysts
with the NYSE and/or FINRA and (ii) may not be associated persons of the RBC Capital Markets, LLC and therefore may not be
subject to FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities
held by a research analyst account.
Conflicts disclosures
The analyst(s) responsible for preparing this research report received compensation that is based upon various factors, including
total revenues of the member companies of RBC Capital Markets and its affiliates, a portion of which are or have been generated
by investment banking activities of the member companies of RBC Capital Markets and its affiliates.
With regard to the MAR investment recommendation requirements in relation to relevant securities, a member company of Royal
Bank of Canada, together with its affiliates, may have a net long or short financial interest in excess of 0.5% of the total issued
share capital of the entities mentioned in the investment recommendation. Information relating to this is available upon request
from your RBC investment advisor or institutional salesperson.
Please note that current conflicts disclosures may differ from those as of the publication date on, and as set forth in,
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DisclosureLookup.aspx?entityId=1 or send a request to RBC CM Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza,
29th Floor, South Tower, Toronto, Ontario M5J 2W7.
Explanation of RBC Capital Markets Equity rating system
An analyst's 'sector' is the universe of companies for which the analyst provides research coverage. Accordingly, the rating assigned
to a particular stock represents solely the analyst's view of how that stock will perform over the next 12 months relative to the
analyst's sector average.
Ratings
Outperform (O): Expected to materially outperform sector average over 12 months.
Sector Perform (SP): Returns expected to be in line with sector average over 12 months.
Underperform (U): Returns expected to be materially below sector average over 12 months.
Restricted (R): RBC policy precludes certain types of communications, including an investment recommendation, when RBC is
acting as an advisor in certain merger or other strategic transactions and in certain other circumstances.
Not Rated (NR): The rating, price targets and estimates have been removed due to applicable legal, regulatory or policy constraints
which may include when RBC Capital Markets is acting in an advisory capacity involving the company.
Risk Rating
The Speculative risk rating reflects a security's lower level of financial or operating predictability, illiquid share trading volumes,
high balance sheet leverage, or limited operating history that result in a higher expectation of financial and/or stock price volatility.
April 20, 2023 Owen Birrell +61 3 8688 6519; owen.birrell@rbccm.com 6
Brambles
Distribution of ratings
For the purpose of ratings distributions, regulatory rules require member firms to assign ratings to one of three rating categories -
Buy, Hold/Neutral, or Sell - regardless of a firm's own rating categories. Although RBC Capital Markets' ratings of Outperform (O),
Sector Perform (SP), and Underperform (U) most closely correspond to Buy, Hold/Neutral and Sell, respectively, the meanings are
not the same because our ratings are determined on a relative basis.
Distribution of ratings
RBC Capital Markets, Equity Research
As of 31-Mar-2023
Investment Banking
Serv./Past 12 Mos.
Rating Count Percent Count Percent
BUY [Outperform] 824 56.05 236 28.64
HOLD [Sector Perform] 591 40.20 132 22.34
SELL [Underperform] 55 3.74 4 7.27
Rating and price target history for: Brambles Limited, BXB AU as of 19-Apr-2023 (in AUD)
15
14
13
12
11
10
9
Q1 Q2 Q3 2021 Q1 Q2 Q3 2022 Q1 Q2 Q3 2023 Q1 Q2
24-Jan-2022
Rtg:I:O
Target: 12.70
28-Feb-2022
Rtg:O
Target: 13.00
20-Apr-2022
Rtg:O
Target: 13.50
05-May-2022
Rtg:O
Target: 14.00
30-Jun-2022
Rtg:O
Target: 13.00
17-Aug-2022
Rtg:O
Target: 13.75
18-Oct-2022
Rtg:O
Target: 14.00
24-Feb-2023
Rtg:O
Target: 15.25
Legend:
TP: Top Pick; O: Outperform; SP: Sector Perform; U: Underperform; R: Restricted; I: Initiation of Research Coverage; D: Discontinuation of Research Coverage;
NR: Not Rated; NA: Not Available; RL: Recommended List - RL: On: Refers to date a security was placed on a recommended list, while RL Off: Refers to date
a security was removed from a recommended list; Rtg: Rating.
Created by: BlueMatrix
References to a Recommended List in the recommendation history chart may include one or more recommended lists or model
portfolios maintained by RBC Wealth Management or one of its affiliates. RBC Wealth Management recommended lists include
the Guided Portfolio: Prime Income (RL 6), the Guided Portfolio: Dividend Growth (RL 8), the Guided Portfolio: ADR (RL 10), and
the Guided Portfolio: All Cap Growth (RL 12). The abbreviation 'RL On' means the date a security was placed on a Recommended
List. The abbreviation 'RL Off' means the date a security was removed from a Recommended List. As of April 3, 2023, U.S. RBC
Wealth Management's quarterly reports will serve as the primary communication for its models and will highlight any changes
to the model made during the quarter.
Equity valuation and risks
For valuation methods used to determine, and risks that may impede achievement of, price targets for covered companies, please
see the most recent company-specific research report at www.rbcinsightresearch.com or send a request to RBC Capital Markets
Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7.
Brambles Limited
Valuation
Our 12-month price target of A$16.00/share employs a 50% short-term (fwd-SOTP) and 50% long-term (fwd-NPV) valuation mix,
rounded up to the nearest 50c. Our fwd-SOTP valuation of A$14.80/share applies 1yr forward peer average multiples to our 2yr
EBIT forecasts by division. Our fwd-NPV of A$16.80/share discounts the future cashflows using a long-term WACC of 7.4% (terminal
April 20, 2023 Owen Birrell +61 3 8688 6519; owen.birrell@rbccm.com 7
Brambles
growth rate 2.5%). Our price target supports our Outperform rating.
Risks to rating and price target
Regional economic growth - Demand for pallets is tied to the movement of consumer staples, which is underpinned by that
region's economic growth. Any slowdown in consumer demand will reduce the demand for pallets.
Market share loss - BXB operates within highly competitive markets; any loss of share to competitors has the effect of slowing
volume growth and can cause the pool to become unbalanced. We highlight the shift by Costco to a plastic pool in the US could
see CHEP Americas lose share and force actions to restabilise the timber pallet pool.
Price pressures on margins - Achieving ongoing unit price growth is a key mechanism to offset any underlying cost inflation and
maintain/grow margins. Recent changes in price contracts to add indexation clauses/ surcharges has served to insulate and stabilise
gross margins.
Supply-side constraints and cost inflation - Overarching supply-side constraints and subsequent cost inflation (labour, lumber,
transport) can impact the efficient operation of the pool and have a major detrimental impact on gross margins.
Loss of pallets and capex escalation - BXB must maintain strict control over the stability of the pallet pool to ensure efficient
cashflow conversion of underlying earnings. This conversion can be disrupted by any material loss of pallets and/or escalation in
pooling capex.
Conflicts policy
RBC Capital Markets Policy for Managing Conflicts of Interest in Relation to Investment Research is available from us on request.
To access our current policy, clients should refer to
https://www.rbccm.com/global/file-414164.pdf
or send a request to RBC Capital Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South
Tower, Toronto, Ontario M5J 2W7. We reserve the right to amend or supplement this policy at any time.
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having regard to local time zones in overseas jurisdictions. RBC Capital Markets provides eligible clients with access to Research
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For a list of all recommendations on the company that were disseminated during the prior 12-month period, please click on the
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The 12 month history of Quick Takes can be viewed at RBC Insight.
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April 20, 2023 Owen Birrell +61 3 8688 6519; owen.birrell@rbccm.com 8
Brambles
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April 20, 2023 Owen Birrell +61 3 8688 6519; owen.birrell@rbccm.com 9
Brambles
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April 20, 2023 Owen Birrell +61 3 8688 6519; owen.birrell@rbccm.com 10
