15/12/05 Back to the future for Brambles

A fallen blue chip has become a hot stock, David Potts writes.
WHEN Brambles, um, lost $14 million of its pallets, painted an arresting blue, apparently somewhere in Europe, the sharemarket was naturally horrified.

So began a collapse in the share price and a series of profit downgrades.

Four years on, half the company is about to disappear and the market is ecstatic. Mind you, while one loss was accidental, the planned one will bring in at least $2.8 billion and probably more.

And having told us how essential a dual listing of its stock here and in London would be, it's back to the future as one Brambles only, listed on the ASX. Dual, schmual. Never mind that it cost $80 million at the time. Think of it more as a few million extra lost pallets.

So let's see what all this adds up to, or maybe subtracts from.

The share price has soared, making good old Brambles one of the hot stocks of the year. Who would have thought?

While the asset sale and the Brambles unity ticket have the thumbs up from analysts, the fact remains the share price is above their estimates of fair value.

Even the share tipsheets, normally enamoured of a blue chip that's been in trouble and is on the way back, are staying clear of it, presumably because the price has outrun the expectations.

Still, Brambles has a lot going for it. It's not every board that would sell assets not because there's anything wrong with them but because they aren't as good as its best investments. And, perhaps, because this is about as good as it is likely to get for them.

There are even hints that Recall, the document management business that recently bought Ausdoc and works on the demonstrable premise that the paperless office is a myth, could also be sold, since it's only the second-best performing asset. That would be a goldmine for shareholders. There's also upside from the fact that the new Brambles company, to be created out of the UK and old Brambles companies, will be conducting a share buyback.

The downside is that the sale and re-merger will be drawn out.

A lot can happen to the sharemarket in the meantime.

ADVANTAGES

* CHEP is firing well, especially in Europe and the US.

* Asset sales are likely to reap $2.8 billion, which will be passed on to shareholders through buybacks.

* Most analysts say the stock is a buy or, at worst, a hold.

* Predicts an improvement in its Australian operations.

* Strong profit result for 2004-5.

DISADVANTAGES

* Asset sales not a done deal and could take 12 months to finalise.

* Buyback may initially be restricted to Brambles UK shares.

* London listing proved a costly disaster.

* Shares are on a high price earnings ratio and so are pricey.

* Relatively high level of gearing.

VERDICT

A blue-chip stock with the worst behind it. Good long-term potential, which gives you plenty of time to buy on price dips or a market correction.
Source: The Sun-Herald