Brambles: Transferring Coverage; Valuation Raised 36% to AUD 19

We raise our fair value estimate for Brambles by 36% to AUD 19 from AUD 14 with the transition of coverage to a new analyst. A key driver of the upgrade is our expectation for a much higher midcycle operating income margin of 21% from 16% previously. We expect the firm’s recent investment in digitalization and operating efficiency to improve transport and repair costs incrementally, and customer service and sales offerings. We also anticipate higher revenue growth, averaging 6% for our 10-year forecast period, from 4% previously. This is predicated on higher volumes in the largest segment of the United States and higher prices in the second-largest segment of Europe, the Middle East, and Asia. We assume Brambles increases pricing broadly with inflation, with volume gains to increase with consumer spending and share gains in existing and new markets.