Pallet business Brambles Limited (ASX: BXB) provided an update for the nine months to March 2016 this morning. Altogether it was a solid report that failed to capture shareholder imagination, with shares rising 0.6% to $12.56 at the time of writing
Sales revenues rose 8% on a constant-currency basis, although actual sales moved 0% as a result of adverse currency movements (Brambles reports in USD). Appreciation of the US dollar hurt European and Asia-Pacific pallet revenues, although Americas sales grew 3% on a constant-currency basis.
The Reusable Plastic Container (RPC) business continues to be a bright spot, growing 16% on a constant-currency basis and 6% on an actual basis. Each other segment grew between 6% and 8% on a constant-currency basis.
Yawn…
Brambles is not an exciting business – but it is an attractive one. With great exposure to the logistics chain and movement of freight both within and between countries, it is quite resistant to business downturns, and its global diversification protects it from weakness in any one area.
Over the long term, Brambles is an interesting way to play increased globalisation and cross-border trade. With free trade agreements and growing membership of blocs such as the Eurozone, international commerce will likely only increase as poorer (manufacturing-focussed) nations exploit new trade opportunities.
Brambles itself is a solid investment thanks to capable management and a focus on lifting Return on Capital Investment, which is a key indicator of effective investment. Brambles also has a solid financial position with low borrowing costs, a high cash balance, and good cash flows from operations. Like similar business Amcor Limited (ASX: AMC), the company's potential is well known by the market.
Brambles appears pricey and trades at around 22x earnings, despite offering forecast growth rates of around 8-10%. With attractive, improving returns on capital, and a defensive international business, Brambles is well placed to justify today's valuation. However, investors will want to ask themselves if there aren't more attractive investments out there for a similar price.
