Shares in pooling and logistics firm Brambles Limited (ASX: BXB) continue to trade close to a multi-year high even after the demerger of the records management business Recall Holdings Ltd (ASX: REC) which allocated one Recall share for every five Brambles shares. With the exception of new Brambles' shareholders who only joined the register post demerger, most shareholders now hold stock in both separately listed entities.
Here are three important points investors in Brambles need to know about the company's future prospects:
1) It's all about pooling now
Consider the respective half-year results ending 31 December 2013 of the two entities. Brambles grew constant currency revenue and profit at 8% and 9% respectively; meanwhile at Recall revenue increased 4.3% and underlying profit fell 0.7%.
In a similar way to management at packaging giant Amcor Limited (ASX: AMC), whom now enjoy a simplified operating structure thanks to the demerger of the Orora Ltd (ASX: ORA) business, Brambles' management no longer has to spend its time and energy being distracted with running the lower growth Recall business. Rather, management can now focus squarely on maximising the potential of the faster growing pooling operations.
2) Balance sheet and cash flow strength
Brambles managed to reduce its net debt over the half year by US$323 million from US$2.714 billion to US$2.392 billion. The ratio of net debt to EBITDA also declined from 1.74 times to 1.66 times. Meanwhile operating cash flow increased by US$81 million which in turn helped support a healthy free cash flow of US$183 million.
3) Objectives on track
Full-year targets for "high-single digit" sales growth (in constant currency) and an underlying profit in the range of US$930 million to US$965 million remain on track to be achieved. Likewise, integration synergies from recent acquisitions and efficiency gains within the pallets division of US$100 million are also still expected to be achieved.
Foolish takeaway
Major changes to a company, such as a demerger can be confusing for shareholders and investors alike. Luckily in this case, Brambles was already operating the pooling and records management divisions along separate reporting lines which have made it relatively easy to determine the historical performance of each business.
