Industrials

Two logistics plays poised for FY22 recovery

Thu 24 Mar 22, 2:38pm (AEST)
Truck with containers

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Key Points

  • Companies slugged with supply constraints, input and labour cost rises during covid
  • Both now anticipate recovery, with Brambles guiding FY22 profit growth upgrade to 8-10%, from 6-7%
  • Analysts bullish on recovery story, with consensus upside potential of 17% on Lindsay and 21% on Brambles

With businesses considered crucial to supplying staples like food, logistics groups should have been the winners of the covid pandemic - but they haven’t, well not yet anyway.

Two examples are Brambles Ltd (ASX:BXB) whose shares have mostly traded down since the start of 2020, and Lindsay Australia Ltd (ASX:LAU).

Both companies suffered dramatic profit slides over the pandemic, with net profit after tax (NPAT) at Brambles falling from nearly $2.1bn in FY19 to just under $700m in FY21. NPAT at Lindsay similarly declined from $8.8m to $1.25m over the same time span.

Brambles and Lindsay experienced similar covid hit

Brambles complained that the price of timber - used to make its iconic chep pallets that are crucial to supply chains around the globe - has risen as much as 5-fold in the US and 2.5x in Europe.

At Lindsay, a shortage of labour was also an issue, as was the reduced flights and sea freight during covid, which slugged the group’s international fresh food import and export unit.

Latest interim FY22 results promising

Brambles

  • Revenue of US$2,766.4m, up 8%

  • Net profit of US$304.8m, up 4%

  • Interim dividend of 15 cents per share, up 15%

  • Dividend in-line with 50% payout ratio

Lindsay

  • Revenue of $273.9m, up 25.3%

  • Net profit of $12.2m, up 87%

  • Interim dividend of 1.4 cents per share, up 16.7%

  • Recovery for Lindsay in FY22

Lindsay's 1H exceptional

Ord Minnett Qld/WA State Manager David Lane labelled Lindsay’s half-year result as “exceptional” and were helped along by a boom in the agricultural sector.

But he warned the company still faced bottlenecks.

“The outlook for the business is very strong … and their recent investments into growing their capacity in their fresh and rail divisions are paying off,” Lane noted.

“The only capacity constraint is they have issues getting truck drivers, and they’ve transferred a lot of their business across to rail and there are capacity constraints there as well.”

Ord Minnett recently upgraded its FY22 forecast for NPAT by 20%, citing the company’s plan to have 400 rail containers in service by the end of the year as among the reasons.

The broker is rated Buy on Lindsay, with a target price of $0.53, with upside potential of circa 20%.

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Lindsay's share price has pushed higher over the last six months.

Brambles less certain

In research published February 28, Ord Minnett noted that Brambles had been able to pass on many of the price increases to its customers.

But the analyst was disappointed with higher capital expenditure, which may lead to negative cashflow in FY22 and possibly into FY23.

But Brambles was still a solid business, the broker noted. It retained its buy rating, with a target price of $12.25, down from $12.70.

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Brambles share price has underperformed over the last six months.

What other broker’s think

Based on the two brokers that cover Lindsay (as reported on by FN Arena) the stock is trading with 22.6% upside to the current price.

Before raising its Hold rating, Morgans wants to see confirmation that management can cycle record results in FY23.

Meantime, based on the seven brokers that cover Brambles (as reported on by FN Arena), the stock is trading with 21% upside to the current price.

Macquarie has concerns about the cash generation of the business  - with lumber inflation, digital investment, supply chain initiatives and possibly an entry into plastic pallets -  and has downgrade to Neutral from Outperform. Target falls to $10.55 from $13.05.

While UBS suspects the guidance upgrade may disappoint investors - as it suggests a less stable free cash flow profile during a challenging period - the broker maintains a Buy rating with the target price increasing to $13.35 from $13.30.

Written By

Ben Seeder

Journalist

Ben is a freelance contributing editor based in Tasmania. He has a Bachelor's Degree in Journalism and Government from the University of Queensland, and is a small-cap stock-picker.

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