Brambles reported 1Q FY19, which guided towards flat 1H EBIT growth.
With the stock trading 16 x earnings and 3% yield, we believe there is only limited upside to the share price in the short-term.
The attractive story here is the upcoming spin-off of the plastic pallet pooling business. We expect this to go to a shareholder vote and be finalized early next year.
Buy BXB and sell covered call options to enhance the yield.
Brambles
Our Algo Engine generated a buy signal in BXB last week and we highlight the price gap in the chart down to $10.06.
We’ve upgraded BXB to accumulate and our buy target range is $10 – $10.40
The potential spin-off of the plastic pallet pooling business will unlock value for shareholders and provides the catalyst for us to have a favorable medium term outlook on the business, along with modest earnings growth showing up in the latest 6-month result.
Brambles
Our ALGO engine triggered a buy signal for BXB into yesterday’s ASX close at $10.39.
This “higher low”pattern is referenced to the intraday low of $9.55 posted on August 8th.
As illustrated in the chart below, BXB has filled the price gap dating back to mid-August, which will provide good support down the the $10.00 area.
We have an estimated upside price target near $12.75 over the medium-term.
Brambles
Brambles has been excluded from our models for the last 2 years, due to the lower high price formations, caused be deteriorating profit margins.
We’seen underlying group profit slip over the last 2.5 years from high single digit growth, to negative growth.
After reporting underlying EBIT of US$997, up 4% on the same time last year, we’ve hopefully seen the inflection point. A further positive is the announcement of the IFCO sale, which is likely to fetch up to US$2.5b.
With the stock trading 20x earnings on a 3% yield, we consider it close to full value.
Brambles
We recommend investors add Brambles to their portfolio as an income play.
Buy the stock and sell $10.50 June call for $0.38 credit and keep exposure to the $0.145 dividend on the 8th March.
Brambles
Our ALGO engine triggered a sell signal in BXB on yesterday’s ASX close at $10.19.
This was the highest closing price since June 26th, but still within the technical “lower high” pattern based on the May 29th high trade at $10.70.
We consider the current price level to be near the top of the counter trend range and ready to trade lower.
Fundamentally, BXB is trading at 19X earnings and a 3.1% yield based on FY18 earnings
For those CFD traders using our SAXO Go platform, we see the next significant price support level near the early November lows at $9.40.
Brambles
BXB’s 1Q18 sales trading update was slightly better than market expectations with robust 6% constant currency revenue growth for the first quarter.
Underlying FY18 earnings will likely grow at 5 – 6% and increase to $1bn.
On the back of increase to earnings, our target price range for BXB is $9.25 support and $10.00 resistance. BXB is a strong business with dominant global market positions, we’re comfortable running a buy write strategy on BXB.
FY18 forecast dividend yield is 4%, we allow for moderate capital growth and cap the gains with a covered call option to boost the annual cash flow to 10%+.
Brambles
At the start of the year, the market consensus was for the Aussie Dollar to fall against the major currency pairs during 2017. So far this year, the AUD/USD has climbed 10% and almost touched .8000 last week.
At 1pm today, RBA chief Philip Lowe will be giving a speech in Sydney. Since many exporters look at .8000 as a pain level, it’s reasonable to expect Mr Lowe to comment about the level of the Aussie.
The strengthening AUD/USD has created a headwind for domestic companies with earnings exposed to the softening USD.
Four companies that we follow which have seen their share prices dampened due to a stronger Aussie are: BXB, CPU, ANN and JHX.
Australian Dollar
The ALGO engine triggered a sell signal on Brambles at yesterday’s close near 10.50.
We don’t see a tremendous amount of downside in the stock with good price support in the $9.60 area.
Internal momentum indicators on the daily charts confirm the ALGO signal and a near-term overbought condition.
We have been suggesting that clients holding long positions take profits or write covered calls in the $11.00 strike price.
Following the sell-off in both AMC and BXB , we now are looking for buying support at or near the current levels. Our short-term momentum indicators have not yet turned positive but we’re likely getting close to valuation support, where increased buying will occur.
We see value in AMC at $14.00.
We see value in BXB at $9.25
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