Shares in Brambles Limited (ASX: BXB) have been held back by concerns about a possible class action arising from a profit downgrade in February. This looks like a kite flying exercise to me, and investors are missing out on the organic growth that Brambles Limited is delivering.
The fact is that Brambles did eventually meet revised market expectations for its full year results.
Earnings were flat at 48c, but sales growth was 5%. That is impressive for a mature business that involves pallets and containers under the CHEP brand.
That sales growth has continued into Q1, with a further 6% sales growth being reported. CHEP Europe is particularly strong.
North America, which is Brambles Limited largest market, has been growing steadily for the last two quarters. Analysts are now expecting earnings growth of 11% for the current year.
It's worth remembering that Brambles is a high-quality business.
The company is market leader in every major region that it operates. Returns on Capital are a high 17%, and the balance sheet is strong with EBITDA cover of 15x. Dividends are currently partially franked and well covered at 29c per share (a useful 3% yield), with growth expected.
Another thing I like about Brambles is that it has been happy to start a greenfield data/technology business for the logistics sector, BXB Digital, without resorting to an expensive acquisition.
The group will invest a further $17m in BXB Digital this year. In time BXB Digital will be an important profit contributor in its own right.
So what about the class action? Well, as a former litigation funder myself, two things suggest to me that the danger may be overstated. Firstly, it has taken nine months for the possibility to even rear its head and secondly the claim period is only four months and for relatively limited share price falls.
Class actions are notoriously expensive and bookbuild (claim size) may simply not be high enough to justify proceeding. And that's if there is a case to answer in the first place.
Foolish takeaway
Shares in Brambles Limited are still 30% off their peak in 2015. With organic growth building up again, this is a good time to reload on the stock, especially for investors looking for exposure to overseas earnings.
