25/04/05 Don't waste your profits - it's time to dispose of Brambles

Looking at Brambles' share price this year, you'd be forgiven for thinking this business had discovered a cure for cancer, when in fact it supplies pallets and disposes of waste. The shares have climbed from 241p in December last year to 318½ earlier this month.

The days when investors derided the company for losing 14m of its distinctive blue Chep pallets are clearly behind it. In the US, where it generates two thirds of its turnover, it is winning new business, cutting costs - trimming £17m of annual costs from its transport bill, for instance - and tidying up its distribution centres.

Can it replicate this success in Europe?

So far things are going well, with sales increasing 8pc in Europe in the first half. As prices continue to rise, so too should turnover growth. But raising prices without losing business is always a delicate operation and there is no guarantee that Brambles can continue to pull it off.

At its waste disposal operation in Germany it had to lower its prices in order to hold on to business. Margins there fell to 6.8pc in the first half of the year.

The shares calmed down to 303p this week, but this still puts the company on a multiple of 22½ times this year's estimated earnings, falling to 18 next year. This is heady stuff, even for a large, well-run company, generating cash. The estimated dividend yield of 2.7pc is below market average.

Questor cautiously suggested that readers should pick up some shares at 243p last September. Those who followed this advice should seriously consider cashing in their profits. All the recovery is priced into the shares and any further upside from here is likely to be limited.