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Digging a moat around Brambles

Nicholas Grove  |  21 Jan 2013Text size  Decrease  Increase  |  

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Nicholas Grove is a Morningstar journalist.


Many consumers would be aware of Brambles (BXB), either consciously or subconsciously, and regardless of whether they own the stock or not. We are all exposed to and purchase fast-moving consumer goods (FMCG) in our daily lives.

And it is highly likely those goods were once shipped atop a pallet that was owned by Brambles.

The company provides pallet and container pooling solutions through its CHEP and IFCO brands. CHEP provides pallet and container chain logistics for customers primarily in the FMCG, produce, meat, home improvement, beverage, raw materials and automotive industries.

IFCO operates a pool of approximately 150 million reusable plastic containers or "RPCs" worldwide. In the US, IFCO sorts, repairs and reissues almost 200 million pallets a year through its national pallet management network.

Brambles also provides information management solutions through its Recall brand in over 50 countries.

One of the company's attributes investors may find appealing is its defensive nature. According to broking house CLSA Asia-Pacific Markets, while Brambles has displayed some cyclicality in the past, it will increasingly exhibit defensive characteristics.

"As the global leader in supply chain equipment solutions for the consumer staples sector, Brambles offers defensive exposure with global diversity ... and a superior portfolio of growth prospects," it says in a recent note.


CHEP - the best defence?

Given the defensive attributes and competitive advantages the company possesses, Morningstar has a narrow moat assigned to Brambles.

Morningstar head of industrials research Peter Rae says the main factor behind the company's moat is the strong competitive advantage gained via the network effect of Brambles' core CHEP pallet operation.

"It's a network that has been built up over many years ... and they (Brambles) are really unrivalled in each of the key regions they operate in," he says.