Brambles Limited's S&P/ASX 20 Inclusion: A Valuation Crossroads for Supply Chain Leadership

On June 6, 2025, Brambles Limited (ASX: BXB) secured a pivotal milestone: its inclusion in the S&P/ASX 20 Index, replacing James Hardie Industries (ASX: JHX) after the latter's stock slumped 30% from its 52-week high. This move underscores Brambles' rising prominence in the Australian equity landscape, driven by a 17% year-to-date share price surge and its position as a leader in global supply chain solutions. But as investors assess its valuation sustainability and growth trajectory, a critical question emerges: Does this stock deserve its elevated multiples, or is it a prime candidate for a correction?

Valuation Metrics: A Glass Half-Full or Half-Empty?
Brambles' recent valuation metrics reveal a nuanced picture. As of June 23, 2025, its trailing P/E ratio stands at 25.94, while its EV/EBITDA multiple is 17.62—both elevated relative to historical averages. Analysts estimate a fair price of A$21.33, implying a -13.1% downside from its current share price of A$24.56. This suggests the market may be pricing in optimism that hasn't yet materialized in fundamentals.

While Brambles' P/E expansion reflects investor enthusiasm for its growth story, the disconnect between valuation and near-term earnings is notable. Revenue grew just 3% year-to-date in constant currency, driven entirely by net new business wins—volume from existing operations (like-for-like) remained flat. This underscores a reliance on new contracts to fuel growth, raising questions about the durability of its current trajectory.

Growth Drivers: Sustainability and Strategic Focus
Brambles' inclusion in the S&P/ASX 20 isn't merely a liquidity play. The company has positioned itself as a sustainability pioneer, ranking #4 globally in the 2025 Global 100 list for environmental and social responsibility. Its CHEP pallet-sharing model reduces waste and carbon footprints—a compelling value proposition as ESG criteria dominate investment decisions.

Strategically, the sale of its CHEP India business to LEAP India in late 2024 exemplifies its focus on capital efficiency. This move not only freed up resources but also aligned with its goal of prioritizing high-growth markets. Meanwhile, its regenerative logistics initiatives—such as AI-driven route optimization and circular economy partnerships—aim to solidify its leadership in a sector increasingly favoring innovation.

Weaknesses to Consider
Brambles' flat like-for-like volumes highlight a potential ceiling in its core operations. While new business wins are positive, sustained growth hinges on convincing existing clients to increase usage—a challenge in a mature market. Additionally, its Piotroski F-Score of 5 (out of 9) signals moderate financial health risks, particularly around leverage and profitability trends.

Investment Implications
For income-focused investors, Brambles' dividend yield of 2.8% offers modest returns, but growth investors must weigh valuation against long-term potential. The fair price estimate of A$21.33 suggests caution near current levels. However, a sector rotation toward resilient supply chain players—driven by global inflation and geopolitical risks—could justify further upside.

Final Take
Brambles' inclusion in the S&P/ASX 20 is a testament to its strategic execution and sector influence. Yet its valuation demands a clear catalyst—such as accelerating organic volume growth or a transformative acquisition—to justify current prices. For now, wait-and-see investors might hold shares, while bulls should target entry points below the A$21.33 fair value. As supply chain resilience becomes a non-negotiable for global businesses, Brambles' sustainability edge positions it as a long-term winner—if it can convert potential into profit.

Final rating: Hold with a constructive outlook.