Brambles windfall after IFCO sale
Logistics company Brambles will reward shareholders after it sold its reusable plastic containers business for $US2.51bn ($3.5bn).
Logistics company Brambles will reward shareholders with up to $US1.95 billion via a share buyback and capital return after it sold its IFCO reusable plastic containers business to the Abu Dhabi Investment Authority for $US2.51bn ($3.5bn).
The business, which provides boxes used to transport fruit, vegetables, meat and bread, will be spun off to a wholly owned subsidiary of the Abu Dhabi Investment Authority, Triton and Luxinva.
Brambles said yesterday that up to $US1.95bn of proceeds from the sale would be returned to shareholders through a combination of a pro-rata return of cash of about $US300 million — about 29c a share — and an on-market share buyback of $US1.65bn.
The balance would be used to repay debt, Brambles told the market.
“The sale will allow Brambles to focus on our strategic priorities and to pursue continued revenue growth within our core markets, while also reviewing additional opportunities in emerging markets,” chief executive Graham Chipchase said.
“Our ambition remains to lead the platform pooling industry in customer service, innovation and sustainability.
“The interest shown in IFCO during the separation process is testimony to how highly appreciated the IFCO business is, and we wish Wolfgang Orgeldinger and his team every success in the future,” Brambles chairman Stephen Johns said.
Brambles had announced in August that it would seek to separate the business either through a demerger or a sale.
The deal comes after the company reported a 27 per cent dip in first-half profit last week to $US319.8m due to higher costs. In fiscal 2018, the now sold IFCO division generated revenues of $US1.09bn, EBITDA of $US248m and underlying profit of $US133m.
Brambles said it was bracing for potential reduced access pallet and timber supply as well as changes to demand and labour shortages amid Brexit uncertainty. The logistics company said it was evaluating its dividend policy and would update the market on the outcome as part of its 2019 full-year results presentation, it said.
Macquarie analyst David Fabris remained neutral on Brambles stock, despite saying the sale price was at the top end of the valuation range.
“The IFCO separation has happened earlier than we had expected and is at the higher end of the valuation range, which should be taken positively by investors,” Mr Fabris said.
“As expected, a large amount of the proceeds are to be used for capital management initiatives.”
Mr Fabris said margin recovery in the company’s CHEP Americas business was the one remaining catalyst still to play out.
A report from ratings agency S&P Global said the credit impact of the IFCO sales would be neutral.
“Although Brambles’ initiatives will be shareholder-friendly, we expect the company to adhere to its financial policy,” it said.
“Furthermore, we expect the company to maintain credit metrics in line with its modest financial risk profile and enough latitude for its capital expenditure program under way in the US.
“The underlying strength of Brambles’ CHEP pallets business underpins the company’s overall business prospects and capacity to maintain financial metrics at a level supportive of the BBB+ rating.
“The company has been undertaking a number of strategic actions to refine its business mix and efficiency.”
Shares in Brambles closed 33c higher at $11.93.
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