17/10/05 Brambles ebbs despite praise

SHARES in Brambles hit a two-month low yesterday despite a generally positive analyst response to the company's decision to sell off its German waste management business and buy Australian file storage company Ausdoc.

Brambles on Thursday sold Cleanaway Germany to rival garbage hauler Sulo for $893 million, saying consolidation in the German waste industry meant the company would have otherwise needed to make acquisitions of its own.

Meanwhile, Brambles also announced a $260 million deal to buy Ausdoc, the main domestic rival to its Recall document management division, boosting its share of the Australian market from 26 per cent to 44 per cent, subject to the acquisition being cleared by the competition regulator.

Analysts applauded both transactions as a sign the company was redirecting its capital towards stronger growth areas.

But the news was not enough to prevent Brambles shares, which were on trading halt throughout Thursday pending the announcement, from falling 15c, or 1.7 per cent, to close at a two-month low of $8.48 when trade resumed yesterday.

Brokers said the stock had merely been caught up in the general down trend of the market, with the benchmark S&P/ASX200 index falling 24.9 points to 4406.1, but noted it was the 11th-largest contributor to the decline of the index in yesterday's trading.

Goldman Sachs JB Were analyst Paul Ryan said Brambles' decision to redeploy capital "from the low-growth, high-risk German waste industry into Recall Australia's annuity-style earnings stream is to be applauded".

"Brambles is transitioning from a restructuring back into a growth story," he said of the company, which has worked hard to turn around since 2003, when annual profits plunged 39 per cent amid news the Chep division had lost track of 14 million of its trademark blue pallets.

ABN Amro analyst Anthony Srom was confident Brambles would be able to lift the return on capital at Ausdoc from its current 6 per cent to the group target of 12 per cent.

"We believe this can be achieved given the complementary nature of the operations and that only 50 per cent of the available market is outsourced," he said.

Brambles chief David Turner said on Thursday there were no plans to sell Cleanaway UK, which had been expected to be sold as part of a job lot with Cleanaway Germany.

But Macquarie analyst Paul Huxford said feedback from trade sources suggested a sale was still possible over the next 12 months, which would bring proceeds of up to $680 million.

"Divestments still offer significant upside," he said.