-More moderate growth expected in second half
-Return to profitability in automotive\/Kegstar expected<\/strong>
<\/p>\n
By Eva Brocklehurst<\/p>\n
Demand for consumer staples during the pandemic has meant pallet movements have been robust and Brambles ((BXB)) has tightened FY21 guidance to 3-5% revenue growth from 0-5%, revealing more clarity on the outlook.<\/p>\n
First quarter revenue was up 5% on a constant currency basis. There was a sequential improvement in automotive\/Kegstar business from the prior quarter. CHEP Americas delivered 7% constant currency growth while growth in EMEA (Europe, Middle East Africa) and Asia-Pacific was 2%.<\/p>\n
Morgan Stanley welcomes the update, as it demonstrates the resilience of the business and also reflects a weaker Australian dollar. The broker notes the share price has fallen -15% since the August result.<\/p>\n
![](\"https:\/\/www.fnarena.com\/ckfinder\/userfiles\/images\/Food\/food%20Storage-Room.jpg\")
<\/p>\n
UBS also highlights the share price has been under pressure, underperforming the local market by -8% over the past month as many on the buy-side feared a negative impact on the automotive business from closures in Europe as well as the pallets business more broadly.<\/p>\n
Hence, the latest guidance should alleviate fears for the short term. The second half is expected to show more moderate growth from first quarter levels as CHEP cycles a strong comparable, which included record levels of pallet demand following the outbreak of coronavirus.<\/p>\n
Macquarie, having been cautious ahead of the first quarter outcome, agrees the update is illustrative of the strength in the pallet business, despite volatility stemming from the pandemic.<\/p>\n
The broker is not concerned by the margin impacts of higher costs as, importantly, operating leverage has returned, supported by expectations of margin improvement in the US<\/strong>.<\/p>\n Morgans upgrades to Add from Hold and finds the valuation attractive for a defensive business with a dominant global position. CHEP Americas stood out, with strong like-for-like volume growth in US and Canadian pallets.<\/p>\n Sales growth was driven by demand for pallets at grocery supply chains as customers increased inventory in the US in preparation for holidays and ahead of any further lockdown measures.<\/p>\n Still, management has indicated a slowing towards the end of October, and demand associated with US inventory stockpiling is not expected to continue for the balance of FY21.<\/p>\n Goldman Sachs had anticipated guidance would be upgraded, given conditions were normalising in both Europe and North America, presenting upside for Brambles across pallet and container businesses.<\/p>\n The broker, not one of the seven monitored daily on the FNArena database, reiterates a Buy rating with a $13.69 target because of the defensive position the company holds in an uncertain environment.<\/p>\n Underlying conditions are expected to continue returning to normal over coming months and should result in more stability in customer ordering and the lowering of abnormal<\/strong> costs<\/strong>. The broker expects a return to profitability in the automotive\/Kegstar business amid the return of pricing power for the company.<\/p>\n FNArena's database has five Buy ratings and one Hold (UBS). The consensus target is $12.24, suggesting 21.2% upside to the last share price.<\/p>\n Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n