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Brambles shares surge as it reassures market at briefing-rpt
Source: SYDNEY, Dec 3 AAP
Published: Wednesday December 3 2003, 1:00 PM

Brambles Industrial Ltd shares surged more than five per cent today as the group managed to soothe investor concerns about the pallet distributor's troubled outlook.

Brambles shares climbed 24 cents or 5.13 per cent to $4.92 by 1222 AEDT, after also making strong gains yesterday.

The impetus for the share price movement has come from a two day analysts briefing held by Brambles in Madrid, Spain, on Monday and yesterday.

While the company made it clear prior to the presentation that there would be no new material on the financial performance of the group, especially its underperforming CHEP operations, analysts have been reassured by comments made by chief executive officer David Turner. advertisement

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Mr Turner again reiterated Brambles' profit guidance for 2003/04 of a weaker first half in constant currency terms, but a better performance in the second half.

He also commented that Brambles was on top of the CHEP Americas and CHEP Europe restructuring programs.

The reassurance come after Mr Turner and Brambles chairman Don Argus suffered a backlash from angry shareholders from both Australia and the UK at last month's annual general meetings.

At the fiery Australian AGM, investors demanded the board take responsibility for the poor performance of the company's pallet businesses since the company's $20 billion merger with UK services group GKN in August 2001.

While this week's comments add nothing new to what Mr Turner told shareholders last month, it was not the bad news some analysts had been expecting.

"Generally the comments on Cleanaway and reassurance on CHEP just provides a bit more confidence to the market," Shaw Stockbroking analyst Brent Mitchell said.

"Nothing new, but nothing bad aswell. There's an element of that there. You expect the worst and if its not there then you're a bit relieved."

However, analysts remain realistic about Brambles' prospects for the future.

"The reality is we are 12 months into a 30 month restructuring program in Europe, which David Turner said in his opening remarks is not without execution risk, and concerns still exist regarding the CHEP USA turnaround," Goldman Sachs JBWere UK analyst Hamish Tadgell said.

He said while there was "an air of slightly more positive thinking starting to creep in", there was still a lack of an obvious catalyst for a re-rating of the stock.

However, some positive news did come from Brambles' waste management business Cleanaway, which confirmed a favourable outcome from recent DSD (packaging recycling scheme) retendering in Germany.

The average industry price reduction from the re-tendered contracts was between 15 per cent and 20 per cent, whereas Cleanaway's DSD revenue remained steady.

"Given management's strong track record and the current focus on cutting costs, we see Cleanaway as well positioned to continue what we view as its very impressive performance in a tough industry," Credit Suisse First Boston analyst Greg Ward said.

However, Mr Tadgell noted that Cleanaway's margins were likely to remain under pressure from the problematic UK Technical Waste market and depressed levels of German commercial and industrial activity.