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Is Brambles still a buy after its 2013 bull run?

Calendar year 2013 was a big year for Brambles’ (ASX: BXB) shareholders with the stock price gaining over 21% despite the demerger of a major operating division, namely Recall (ASX: REC).

The separation of information management solutions business Recall from the pooling solutions business of Brambles has created two more streamlined and focused companies. For shareholders it means they now own stock in two companies. Since the demerger, Recall’s shares have fallen around 8% while Brambles share price is currently little changed after a dip which saw the stock fall to around the $8.50 level, in the immediate days following demerger.

While the decline in Recall’s share price post-demerger could be interesting in its own right for investors looking to pick up a decent business which may be under selling pressure due to technical factors, most analysts would agree that the CHEP and IFCO businesses housed within Brambles are the jewels from the crown.

Brambles in 2014

Management is forecasting that the Brambles ex-Recall business will achieve growth in underlying profit (earnings before interest and tax) of US$930 million to US$965 million, which equates to 4% to 8% growth.

Brambles has a diversified revenue base both in terms of regions and clients. It also has opportunities to continue to expand its pallets business in both developed and emerging markets, as well as the growing reusable plastic crates (RPCs) and containers businesses. Brambles is therefore both a defensive and growth company.

Its focus on developing alternative uses for improving the utilisation of its assets, reducing per unit expenses and driving a customer value proposition all help to position Brambles with a sustainable competitive advantage, superior rates of economic return and superior levels of growth.

Foolish takeaway

With Brambles trading on a forecast price-to-earnings ratio of 24.8, the stock might be a bit too pricey for some Foolish investors at present. However, the high quality nature of the business makes it one to watch in 2014 for any opportunities to purchase at more enticing prices.

Brambles growth profile is appealing but its yield isn't so exciting.

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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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