Brambles Ltd (BXB) – Constraints subsiding

Brambles Limited provides supply chain logistics solutions. The company operates through CHEP Americas, CHEP EMEA, and CHEP Asia-Pacific segments. It offers pallets, crates, and containers to transport goods in supply chains through its share and reuse network. Brambles Limited was founded in 1875 and is based in Sydney, Australia.

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At its annual general meeting, Brambles (BXB) reaffirmed its FY27 guidance for sales revenue growth of 2–4% and underlying profit growth of 2–6% in constant currency terms. The FY28 target to expand the underlying profit margin by at least three percentage points on FY24 was also reconfirmed. Operational challenges linked to pallet repair capacity constraints in the US appear on track to be resolved by the end of the first-half of FY27. Pleasingly, BXB says the actions it has taken to improve pallet availability has meant that since mid-June this year, it has not lost any customer orders due to repair capacity constraints. From the second-half of FY27, BXB should have a natural tailwind from cycling the disruption costs, but should also benefit from starting cost recovery actions. The industry backdrop looks more supportive to implement cost recovery actions such as price increases, given white wood pallet prices are increasing, and higher fuel and labour costs are likely to be passed on through surcharges.

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Pallet costs are likely to stay structurally elevated which means capital expenditure as a proportion of sales may sit at the higher end of the 13–15% guidance. Free cash flow (FCF), however, is expected to remain strong, with BXB confirming its guidance for FCF before dividends of US$800–950 million in FY27.  We make minor changes to our forecasts, including adjusting for currency and share buybacks, which results in downward EPS revisions of 1% in FY27 and FY28 in Australian dollar terms. Our target price is revised to $24.10 from $24.40 on the earnings changes as well as incorporating a higher risk-free rate of 5.0%.

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We retain the Buy recommendation.

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