Brambles, a somewhat long suffering position in our direct equity portfolios continues to do enough to remain. Pleasingly, we’d trimmed some of the position, down to the minimum weight in our portfolios, prior to the investor day (which was held back in mid September, and some 25% higher by share price)
BXB’s subsequently disappointed the market at the investor day, by noting that due to reinvestment needs, and volatile raw material input prices (e.g. lumber, which is what pallets are made from) NPAT would be lower than anticipated (1-2% growth) and that free cashflow would be negative as they fork out for unduly higher wood.
BXB’s is no stranger to disappointing the market, and so, the stock declined on the back of rebased expectations, down to present levels.
And so, we come to today’s announcement. That little tag line of “underlying growth between 6-7%” in the below outlook statement, is just enough to remind the market of the underlying good story, of the underlying investment thesis.
We think, as we endeavour to second guess what the market is thinking, that supply chain inputs and associated issues are a little clearer, in the mind of the market, a little more widespread, a little more persistent, a little more publicised (having been mentioned pretty much everywhere for the past few months) and hence a little more accepting as an excuse for sales & margin volatility.
Hence the decent pop today ~+2.5% on an otherwise flat day for the market. The announcement is ahead of the now rebased expectations.
So, BXB continues to do enough, and remains a good QGARP stock in our direct equity portfolios.
Double digit sales growth is not easy to come by, at anything approximating a decent multiple, and BXB is as close to a monopoly as an industrials company tends to get. Pricing power is usually synonymous with margin expansion, when accompanied by good top line growth, and that’s what the market has been reminded of.
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