Help us build and protect your wealth, with private wealth services tailored to your specific needs.11th March 2020 - Asset Management
The stock in focus this month is Brambles Limited (BXB), a business that keeps things moving with pooled pallet solutions and information management systems. BXB is a global company with most of its revenue coming from offshore. Their sheer scale and industry leading position across most markets gives the business a significant cost advantage. And as their customer network densifies, it becomes increasingly difficult for competitors to sustainably take market share.
Brambles and companies like it are essential to efficient supply chains, particularly in more developed economies where the cost of labour is higher and maintaining a large stock of pallets is a costly and time-consuming exercise for retailers and manufacturers. As an example, goods are loaded onto a standard sized BXB pallet at the manufacturer, shipped to the distributer who then sends them onto the retailer, BXB will then retrieve the pallet and deliver wherever necessary.
Over the past 3 years, BXB has dealt with several key headwinds including a private equity backed competitor in the US that attempted to take market share through an aggressive pricing structure – in our view an irrational competitor and based on our analysis this threat has abated. At the same time, the US business experienced some cost pressures from key inputs such as lumber (to make the timber pallets) and transportation, increasing at rates well above inflation. The net effect of these two impacts was reduced profitability for BXB.
At the time of writing BXB’s profitability is improving due to their competitors being rational, positive contract price increases, and operating efficiency programs bearing fruit. Growth will also come from expansion into developing countries, market share gains in the US, provision of technology (data) to its customers and overall network density.
At current pricing, we think BXB represents excellent value when considering its market leading position, sustainable competitive advantage, strong balance sheet, capital management initiatives and exposure to global economic growth.
If you would like more information please call 1300 ELSTON or contact us to speak to one of our advisers.
This material has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained in this material is General Advice and does not take into account any person’s individual investment objectives, financial situation or needs. Before making an investment decision based on this advice you should consider whether it is appropriate to your particular circumstances, alternatively seek professional advice. Where the General Advice relates to the acquisition or possible acquisition of a financial product, you should obtain a Product Disclosure Statement (“PDS”) relating to the product and consider the PDS before making any decision about whether to acquire the product. You will find further details of the service we provide and any cost to you within the Financial Services Guide. Any references to past investment performance are not an indication of future investment returns. Prepared by EP Financial Service Pty Ltd ABN 52 130 772 495 AFSL 325 252 (“Elston”). Although every effort has been made to verify the accuracy of the information contained in this material, Elston, its officers, representatives, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this material or any loss or damage suffered by any person directly or indirectly through relying on this information.
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