After reviewing the outlook for plastic pallets, UBS suspects new capital will likely be deterred by the risks involved and the long-dated return profile.
Less than 5% of customers are willing to pay a sufficient premium for plastic pallets and US pool companies can only justify plastic at a competitive price in selective closed-loop lanes.
If such assumptions prove correct, then the market may be overstating the risk of plastic to Brambles, in the broker’s view.
While the earnings profile looks positive over the next three years, UBS finds risks that costs emanating from plant inefficiency, changes to retailer behaviour and capacity issues may prove stubborn.
As a result, a lower entry point is sought before the broker becomes more positive. Neutral rating and $12.10 target maintained.
Sector: Commercial & Professional Services.
Target price is $12.10.Current Price is $11.50. Difference: $0.60 – (brackets indicate current price is over target). If BXB meets the UBS target it will return approximately 5% (excluding dividends, fees and charges – negative figures indicate an expected loss).
