Why are investors buying shares in Brambles Limited (ASX: BXB), and pushing it up to a new 52-week high of $9.53 and price levels not seen since April 2008? I have five reasons for investors' recent interest and believe there is more to come in the mid-to-long-term for the international supply chain logistics service provider.
Strong majority of sales are international
About 83% of total revenue comes from the Americas and Europe, and with the US returning to normal and Europe at least not getting worse, business conditions are improving in general. Also, a weakening Aussie dollar would boost Euro or US$ denominated earnings when translated back through currency conversion for recording.
Firm earnings growth over past two years
After two soft years of declining profits in 2010-2011, the trend has reversed, with underlying net profit rising an average annual compound 22.3% to $730 million in 2013. In the most recent half-year of H1 2014, sales were up 7% to US$2.6 billion, and underlying net profit similarly gained 10%.
Five acquisitions over past three years
Part of its success in business growth has been from the five separate businesses it acquired, all of which are involved in the logistics pooling solutions business. The company's business segments deal in pallets, reusable crates and containers, and the pooling solutions are for devising systems where customers can order, use and return items.
The acquisitions widen its network in areas like Canada, the US, Europe and Asia. The $14.7 billion logistics supply chain management company spans the globe and wants to focus on what it does best.
Recent demerger of Recall
In December it spun off Recall Holdings Limited (ASX: REC), its information and document management solutions business. It has been successful in its own right, but was different from the pallets and container business, so Brambles wanted it to maximise its potential outside of the parent company. Separate from the underlying net profit for the half year, the funds gained from the demerger were US$663.7 million.
Foolish takeaway
It has made such a great business on boxes, crates and pallets, but it has done so by making itself number one in the industry, and proliferating its products and services so much that its brand names like CHEP are synonymous with company use worldwide.
Simple in concept, but with decent net profit margins around 10%-11%, and both ROE and return on invested capital in the low 20s, its case for having a durable competitive advantage is proven.
