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Who stacks up better: Brambles or Royal Wolf?

Shipping company Brambles  (ASX: BXB) is best known for its blue CHEP wooden pallet, which is utilised globally by an extraordinary number of firms to conveniently move goods. Brambles isn’t just in the pallet pooling business though. The company also pools and supplies containers of varying sizes and for various uses.

The containers range from reusable plastic crates (RPCs) that hold fruit and vegetables – look closely and you might even see these containers being used as part of the display at your local Woolworths (ASX: WOW) – up to large Unit Load Devices (ULD), which are used to transport cargo on aeroplanes for customers including Qantas (ASX: QAN).

Competitor Royal Wolf (ASX: RWH) specialises in a much larger container than the array supplied by Brambles – the shipping container. Royal Wolf’s containers are used for onsite and transportable storage and also freight and logistics. In total the company has a leasing fleet of around 39,000 containers (including containers converted to portable buildings) and also sells around 15,000 containers per annum. Like Brambles, Royal Wolf has a diverse customer base, although those customers are primarily in Australia and New Zealand, unlike Brambles global reach.

Valuation

At $2.75 a share and with Morningstar forecasting Royal Wolf will earn 15.9 cents per share (cps) in financial year (FY) 2013, rising to 19.5 cps in FY 2014, Royal Wolf is currently trading on a price-to-earnings (PE) ratio of 17.3. For Brambles, Morningstar is forecasting 39.7 cps rising to 42.7 cps in FY2014. At $9.00 a share this places Brambles on a FY2013 PE of 22.7.

Royal Wolf and Brambles are both currently trading with trailing dividend yields near 3%.

Performance

Since May 2011 when Royal Wolf listed via an initial public offering (IPO), the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) is up 8.5%. In contrast, Royal Wolf has provided IPO investors with an index beating 28.5% share price return. Trailing just behind Royal Wolf, Brambles’ share price has appreciated 24% over the same period. 

Foolish takeaway

Brambles is an outstanding company. Some investors with a long-term perspective might be comfortable paying up for quality, however other investors are likely to consider Brambles as fully priced at present and would prefer to wait for a lower entry point.

On the other hand, given Royal Wolf is forecast to grow earnings at a much faster rate than Brambles over the next 12 months, 22.6% versus 7.5%, Royal Wolf’s valuation looks comparatively more appealing.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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