Tag: ASX:BXB

While BXB’s 1H17 result overall was below market expectations, the outlook for flat earnings growth in FY17 was much weaker than expected. FY17F EBIT was down  6% to US$950m.

The market was looking for stable EPS growth supporting an EBIT range of $1b – 1.1B over the next 12 to 24 months.  The $950 million figure is a substantial miss and the new consolidating share price range for BXB is now $9.25 to $11.00.

Setting the covered call strategy at a more aggressive level will help to drive returns here, we look to lower the call strike and see $10.25 calls as an effective level.

Shares of Brambles are trading over 8% lower in early trade as the pallet maker announced profits will fall well short of their original guidance.

For the first 6 months of the fiscal year, the company reported a 26% fall in net profit to USD 330.4 million. The drop was a largely blamed by a sharp write down on its Hoover Ferguson Group venture, as well as, margin pressure in its US business.

Back in November the company’s guidance suggested constant-currency sales growth in the 7 to 9% range and underlying profit growth in the 9 to 11% range.

Brambles declared an interim dividend of 14.5 cents a share.

Subscribers will remember that the Algo engine gave a sell signal on January 4th at $12.50. Brambles shares hit an 18-month low  $9.54 earlier today.

We’ve been buying BXB and selling covered calls at $11 into May as a relatively defensive income play.

BXB released a 1H17 trading update which included an FY17 profit warning.

BXB announced that it expects 1H17 constant currency sales and underlying profit growth of only 3%, down from previous forecast of 7 – 10%.

North America Pallets were impacted by both revenue and cost pressures.

We’ve been concerned about BXB’s high PE valuation and low compressed yield. To protect against the risks, we  hedged BXB by approximately 5%, whilst keeping exposure to the upcoming dividend.

At $10.00 we think BXB is a new counter trend buying opportunity and any short exposure or hedging should be closed and new long positions established.

We’ll keep you informed via the blog when this change in directional strategy occurs.

Over recent weeks, our Algo Engine has been flagging a number of short signals. This is indicating there’s a large number of stocks that are at the peak of their counter trend rallies. As the key indices start to struggle, we’ll begin focusing on the short signals with a view towards either taking profit on existing long positions, overlaying a call option on defensive names or positioning on the short side to profit from any sell-off  in over valued names.

In the January Video Market Update on the ASX Top 50, which we will release in the coming days, we’ll explain more on the algo short signal patterns emerging and how we’re positioning portfolios for what we think is a period of increased market risk.

We’ve used the chart below of BXB to help illustrate the counter trend pattern referred to in the text above. In the case of BXB, the algo signal has drawn our attention to the recovery BXB has had since November, the compressed forward yield of now only 2.8% and the high PE ratio. In response, we’ve used the signal as  a trigger to sell $12.50 at-the-money call options into April for a $0.50 credit, whilst expecting to keep exposure to the March $0.15 dividend.

Shares of Brambles have bolted to new 3-month high at $12.35 as the trading conditions in the US and European markets continue to reflect a sustainable revenue outlook.

The international pallet, crate and container supplier is looking to benefit in FY 2017 from a recent joint venture in the in the Oil and Gas sector, as well as, a restructuring in their container division.

Despite a change in CEO, our EBIT remains unchanged in the 9.0% range, which is in the lower end of management’s 9-11% range.

In the near-term, we see price resistance in the $12.75 area and will look to sell covered calls in the $13.00 area to enhance the low 2.8% forward dividend yield on offer.

We’ve been buyers of BXB on the recent low and are now mindful the stock has rallied almost 10% from its lows and on a valuation basis the share price is likely to run into selling pressure around $12.50.

At $12.50 it places BXB on a forward yield of 2.5%, assuming management delivers 8% underlying EPS growth. From a technical perspective, the algo engine is now flagging the lower high formation which we take as a signal to either lock-in short term profits, or for longer term holders, sell covered calls to enhance the cash flow yield.

Brambles (BXB.ASX) is now approaching a buy signal entry point.

Our algorithm engines have alerted this setup and it’s now worth establishing the entry conditions. The stock has just traded into the first level of the entry point band and we therefore, begin adding exposure.

In a weak market we could see BXB trade down to the lower range of the entry band, therefore, we split the entry parcel into two equal buy orders and place one at today’s open and the remaining 50% parcel at the lower band price of $11.50. If both orders are filled, this will generate an average entry price of around $11.85.