Brambles Limited (ASX: BXB) is a supply chain logistics company with operations in over 60 countries. Brambles enables access to reusable pallets, crates and containers for shared use by multiple participants throughout the supply chain.
Since 2009, the Brambles share price has risen from just above $4.30 to $9.21. Whilst returning approximately 110% in capital growth for those post GFC investors, since July 2016, Brambles’ share price has declined over 30%.
With a current market capital of $14.5 billion, Brambles has a P/E ratio of 17 and a dividend yield of 3.1%. Based on this, the Brambles price tag appears to be reasonable with a rather average historical performance.
Brambles has grown earnings per share from $0.46c in 2008 to $0.50c in 2017. In total, Brambles have returned $4.45 in earnings per share whilst paying out $3.02 in dividends over this 10-year stretch.
In the same time period, Brambles grew book value per share from $1.15 to $2.33. As such, with $1.43 in retained earnings per share, Brambles has only managed to improve book value per share by $1.18.
This means that outside of returning earnings via dividends, Brambles has eroded shareholder value. Whilst this is a cause for concern on its own, investors should also pay attention to the introduction of new technologies in the supply chain logistics industry.
Companies like Yojee Ltd (ASX: YOJ) and GetSwift Ltd (ASX: GSW) are demonstrating the potential for industry changing technologies. In particular, the application of blockchain and artificial intelligence is poised to enhance industry efficiency and connectivity.
Whilst the emergence of new technologies presents a risk of being left behind, if you believe in management, Brambles could take advantage of the benefits new technologies provide. In the 2017 annual report, Brambles stated its priority of “innovating to create new value by investing in new technology that enhances customer offerings”.
Inefficient allocation of profits is a warning sign for me when choosing businesses to invest in. However, I believe the service Brambles provides will hold value in the long-term. Given the lack of discount in the current share price, the decision on whether to invest in this company boils down to belief in management.
Ultimately, if there is a convergence of a falling share price and further evidence of innovation, I would like to own this company.
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Motley Fool contributor Matt Breen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.