Private equity is circling around defensive ASX 200 stocks: Brambles rallies on takeover talks

Brambles (ASX: BXB) is yet another defensive name that might fall under the helm of private equity.

According to the Australian Financial Review, CVC Capital Partners has been talking about an offer which values Brambles at more than $20bn, including debt.

Brambles confirmed its preliminary engagement with CVC on Monday. Though, everything remains up in the air. 

Interestingly, Brambles rallied 6.2% on February 15 after responding to media speculation that it is not in discussions with, nor has been approached by any third parties. 

Pricing power

Brambles has upgraded its FY22 earnings two times this year, being able to pass on higher prices to customers without much pushback.

Source: Brambles half-year FY22 results presentation

The latest upgrade included:

• Revenue growth of 8-9% (previous guidance of 6-8%)

• Underlying profit growth of 6-7% (previous guidance of 3-5%)

• Free cash flow after dividends to be a net outflow of US$300-350 (previous guidance of US$350m)

Brambles, which has been a traditionally slow moving and underperforming stock, is now up 7.6% year-to-date versus the ASX 200, which is down -6.6%.

Private equity gets defensive

In the new era of rapidly increasing interest rates and quantitative tightening, private equity has taken a turn from tech and growth investments to more defensive plays.

Notable takeovers (and takeover offers) in the past 12 months include:

• April 2022: Ramsay Healthcare

• December 2021: Spark Infrastructure

• September 2021: Ausnet Services

• July 2021: Sydney Airport