Portfolio Changes - Reduce Brambles (BXB) & Add Spark NZ (SPK)
Blended Australian Equities Portfolio & Australian Equities Income Portfolio Change
Reduce Brambles (BXB)
Brambles delivered a commendable FY21 result, with underlying profit growth of ~8%, ahead of the 5-7% guidance range.
The operating performance was particularly impressive given the volatility in demand and disruptions in supply chains affecting Brambles’ customer base of manufacturers and retailers.
Supply shortages in lumber, transport, and labour added to inflationary pressures through supply chains. A key highlight of the FY21 result was Brambles’ capacity to pass through much of the cost inflation, with ~80% of US contracts (BXB largest market) having pricing surcharges in lumber and transport.
Recognition of Brambles’ strong operational performance has now been adequately reflected in its ~20% uplift in its share price over the last 6 months. Importantly, FY22 guidance as well as an update on the economics of a plastic pallet trial will be addressed at its upcoming investor day in mid-September. We have reduced our weighting in Brambles following the considerable P/E re-rating in its share price.
Australian Equities Income Portfolio Change
Add Spark NZ (SPK)
Spark NZ (SPK) remains our preferred telecommunications exposure in the portfolio. SPK’s focus ongoing cost-out and efficiency gains and a maximizing free-cashflow and dividends paid to shareholders has underpinned our investment thesis.
SPK delivered a solid FY22 achieving underlying growth in mobile revenues and disciplined control of operating costs. While revenues were impacted by a lower contribution from Broadband and roaming services, gains in mobile market share and strong momentum in Cloud services provided SPK to achieve a result in line with guidance.
SPK provides investors with an attractive dividend yield of ~5%, with lower-than-average Aust & NZ Telecommunications industry risk. The current Spark review of options for its infrastructure assets, including Mobile Towers, could also prove an additional positive catalyst.