MENU

Brambles Limited’s (ASX:BXB) share price jumps as private equity circles its assets

There’s nothing like competitive tension to bring out the best price in an asset sale and shareholders in Brambles Limited (ASX: BXB) may be set to reap this benefit.

Private equity buyers are reported to be circling the logistics group’s reusable plastic container business IFCO that Brambles intends to spin-off into a new listed entity, according to the Australian Financial Review.

Analysts believe the IFCO would be worth between $3 billion and $3.6 billion (based on the prevailing exchange rate) if the German headquartered business that supplies plastic crates to grocers for fresh food is to list on the ASX.

The valuation creates a base and the fact that several private equity and trade buyers have expressed interest in IFCO means Brambles might get an offer in excess of what IFCO could be worth as an ASX-entity.

The share price of Brambles is reacting positively to the news as it jumped 0.8% to $11.01 in early trade when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is down 0.2%.

That is great news for shareholders because management could use the proceeds from the sale to fund a share buyback or some other capital return program.

Handing back cash is the “in-thing” right now as a long list of large caps like BHP Billiton Limited (ASX: BHP), Stockland Corporation Ltd (ASX: SGP) and Adelaide Brighton Ltd. (ASX: ABC) are scoring points with investors through such a strategy.

But Brambles’ shareholders shouldn’t get too excited just yet. There’s no certainty that a formal offer is forthcoming and even if there was one, it may not be in the interest of the company to accept it.

One reason why a bid could be rejected even if it valued IFCO on a higher multiple is tax. Selling a business at a profit will attract a capital gains tax liability while spinning-off a division into a newly created entity and distributing the new shares to existing shareholders through an in-specie distribution generally won’t.

This won’t stop cashed-up private equity buyers from trying though as they are hungry for new deals. IFCO fits the bill in many respects given its potential to expand more aggressively into Asia and Latin America.

The company said that sales to these two emerging markets hit 12% in the last financial year although that is on a small base.

But whoever owns IFCO will need fairly deep pockets as expansion won’t come cheap – particularly in the US where the tyranny of distance between food producers and grocers is large.

IFCO owns a pool of around 300 million plastic containers and generated revenue of $1.1 billion in FY18. Brambles has not provided guidance for the current financial year.

Brambles is a buy in my book as I think the stock is attractively priced, particularly in light of the falling Australian dollar and the potential upside from the IFCO divestment.

But Brambles isn’t the only large cap stock of note. The experts at the Motley Fool have picked three blue-chips that are well placed to outperform in FY19.

Follow the free link below to find out what these stocks are.

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited and Brambles Limited. 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.