Morgan Stanley has upgraded its rating on Brambles from ‘equal-weight’ to ‘overweight’ saying the company was well positioned to navigate the coronavirus pandemic.
The broker increased its price target on the supply-chain logistics company from $12.80 to $13.00, saying its largely defensive end markets, ongoing buyback and foreign exchange leverage meant it was likely to be a solid performer through the market downturn.
The broker noted while the company wasn’t immune to disruption from the pandemic, 85 per cent of its revenue was derived by staples, allowing it to participate in the ‘supermarket surge’ for supplies.
“Industry feedback suggests that poolers are meeting elevated activity with increased pallet velocity. This comes with handling/transport costs but likely precludes an associated capex surge,” said analyst Niraj Shah.
“We believe up/downside risks to margin expectations are reasonably balanced. To date, FY20 guidance of mid-single-digit revenue and operating profit growth remains in place.”
The broker also reflected on the company’s performance during 2009 and 2010 when revenues only declines by 1 or 2 per cent.
“We believe near-term participation in the supermarket surge, leverage to a weaker AUD:USD, medium-term defensiveness, and ongoing buyback are at odds with the recent share price performance,” said Mr Shah.
“Admittedly, Brambles has outperformed the market over this last three months, but not to the same extent as others that participate in the ‘essentials’ supply chain.”
Brambles shares are down 5.3 per cent year-to-date, against the benchmark S&P/ASX 200 Index which is down 19.9 per cent.
