More on Brambles
Brambles
Brambles’ sales increased 9% CER (+5% reported) and EBITDA increased 28% in 2004 largely driven by strong growth in its largest business, pallet hire (Chep), which generates 45% of sales and 65% of EBITDA. Chep’s EBITDA increased 48% more than offsetting a decline in profits at the next largest business, waste disposal, whose margins shrank, although Brambles’ attributes the decline this to a number of one-off factors and sales grwoth was a healthy 6%.
The key driver has been cyclical recovery - Chep rents out pallets that are used for packing goods for transport, demand is therefore linked to the strongly cyclical transport industry. The other businesses have a mixture of cyclical and defensive drivers so Brambles as a whole is largely cyclical. This implies that growth is likely to continue to be strong in the second half and so far put Brambles is a little ahead of where it needs to be to meet current earnings expectations for the full year (to June 2005).
Brambles generation of operating cash flow is very strong at £376m in the half year, but capital expenditure of £210m in the same period took up a big chunk of it (which this followthe apttern we saw last year) keeping free cash flow down.
The prospective PE of 21× and the yield of 2.8% reflect market expectations of strong medium term growth on cyclical recovery. There is also seems to be room for long term acquisitive growth across the busineses and some organic growth in document management and waste disposal.
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