By Bruce Williams
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.
- Global logistics company servicing primarily developed markets
- Strong market position due to scale and network benefits
- Headwinds of the past few years are abating providing BXB with good growth prospects and reasonable value
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