Brambles upgraded to ’A-’ by S&P on stronger market position

Investing.com -- S&P Global Ratings has upgraded Brambles Ltd. to ’A-’ from a previous rating, citing the company’s strengthened position in the pallet-pooling segment of the supply chain logistics industry.

The rating agency pointed to Brambles ’ improved asset efficiency, reduced capital intensity, lower operating costs, and enhanced circularity of assets as key factors behind the upgrade. These improvements have significantly boosted free operating cash flow and return on capital.

Brambles has seen its EBIT margin increase to approximately 21% in fiscal 2025, which ended June 30. This represents a substantial improvement from the 16.5%-17.5% range consistently maintained until fiscal 2022.

The company’s global scale and network, with operations in 60 countries, create high barriers to entry, according to S&P. This extensive infrastructure makes Brambles a key logistics partner for many major global fast-moving consumer goods brands.

About 85% of Brambles’ revenue comes from fast-moving consumer goods, food and beverage companies, contributing to relatively resilient revenue and earnings streams. Improvements in tracking, recovery, and repair are expected to enhance pallet quality for customers while reducing the business’s capital intensity.

S&P noted that Brambles maintains conservative financial policies, with a financial leverage target of 1.5x-2.0x. The company has kept its debt-to-EBITDA ratio below 1.5x over the past five years.

As of June 30, 2025, after adjusting for the settlement of a $500 million bond maturity in July 2025, Brambles had approximately $1.73 billion in cash and undrawn facilities. This provides flexibility to fund the $400 million on-market share buyback program planned for fiscal 2026.

The stable outlook reflects S&P’s expectation that Brambles will maintain its market-leading position and disciplined capital management. The rating agency expects the company to operate below 1.5x debt-to-EBITDA over the next two years.

S&P indicated it could lower the rating if Brambles maintains a debt-to-EBITDA ratio above 2.25x for a prolonged period, though this is considered unlikely over the next two years. Conversely, a rating upgrade could occur if the company commits to operating with a debt-to-EBITDA ratio comfortably below 1.75x under various conditions.

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