Stocked up

3Q23 RESULT

Need To Know

• FY23 underlying profit guidance upgrade to 17-19% growth at constant currency (up from 15-18%)
• Free cash flow after dividends expected to be positive (revised from being a net outflow)
• Result predominantly driven by price recovery, Americas like-for-like volumes down ~6%yoy

BXB’s 3Q update delivered group revenue growth of 15%yoy at constant currency, or 9% at actual rates, impacted by a higher USD. The result was largely driven by price recovery, with Americas seeing 19% price growth, and EMEA seeing 12% price growth.

Volume growth was mixed, with Americas seeing an overall 4%yoy reduction, driven by a 6% fall in like-for-like, partly offset by volume growth from new and existing customers in Latin America (bulk growth expected in FY24). BXB noted that the volume loss was in part due to underlying softening consumer demand, which is likely to continue. BXB however noted it has retained all key customers and ‘identified opportunities for business growth’. Europe saw net new business wins of 4% driven by rollover contributions from prior-year contract wins, with like-for-like volumes falling 1%, with softening demand offset by strong growth across the automotive businesses.

Input costs remained above historical averages, despite lumber and transport costs beginning to moderate. Pallet costs are still expected to be above prior year levels and labour costs remain elevated.

Progressive destocking continues with ~2m pallets returned as customers optimise inventories, however BXB expect just ~4-5m pallets across the 2H23, down approximately ~1m pallets from prior expectations. The lower number however will result in lower-than-expected repair, handling and transport costs in the year, in part driving the FY23 upgrade. 

Guidance upgrade to sales for 14-15%yoy growth (from 12-14%) is largely driven by price and customer mix benefits. NPAT guidance upgrade to 17-19%yoy (from 15-18%) is inclusive of US$25m transformation costs (down from $48.4m FY22) and driven by repair cost deferral from lower pallet destocking. Guidance for positive free cash flow after dividends is a pleasant surprise, however is still subject to many factors such as currency and pallet pricing.

Investment View

The price recovery growth and new customer wins is a clear positive for the stock, beating expectations. We remain cautious however of BXB’s ability to retain the price increases, with growth expected to materially slow in FY24/25 as one-off surcharges are not repeated. BXB trades marginally below its historical PER and in-line with the market, although continues its positive earnings upgrade momentum, with likely 3-4% consensus upgrades for FY23. Without more clarity on future sales pricing and volume growth, we remain a Hold.

Figure 1: Historical PER marginally below average

Figure 2: Trading in-line relative to historical market PER