ii view: Bunzl delivers a year of solid growth

A diversified sales blend with the addition of ongoing acquisitions. Buy, sell or hold? 

Full-year trading update to 14 December

• Currency adjusted revenue in 2021 is expected to be up year-on-year by around 7%
• Adjusted operating margin is expected to be only slightly ahead of historical levels

Guidance:

• Expects revenue in 2022 to be slightly higher than in 2021

ii round-up:

Distribution company Bunzl (LSE:BNZL) today flagged its expectation for full-year currency adjusted revenue to rise by around 7%, split roughly equally between underlying growth and bolt-on acquisitions made. 

That implies underlying revenue growth of around 3% in the latest fourth quarter, up from the 2.5% achieved in the prior third quarter. 

Shares in Bunzl, which distributes products to customers including the National Health Service, Walmart (NYSE:WMT) and Domino's Pizza (LSE:DOM), rose by around 1% in UK trading, having more than doubled since pandemic induced market lows back in March 2020. Year-to-date they are up by close to a fifth compared to a gain of almost 12% for the wider FTSE 100 index.

Revenue growth for 2022 is also expected to be slightly higher than in 2021, helped by the impact of acquisitions completed this year. Bunzl has invested approximately £900 million into corporate purchases over the last two years, with 2020 and 2021 representing two of its most acquisitive years in terms of committed spend.

Group products include packaging, catering equipment and safety wear, including pandemic personal protective equipment or PPE such as masks and gloves. A recovery in its base business including the foodservice and retail sectors, and supported by inflationary price rises, has so far helped offset an anticipated slowing in Covid related sales.

The distributor’s adjusted operating margin is expected to be only slightly ahead of historical levels this year and in line with past performance during 2022, as the mix of sector and product sales returns to more typical levels. 

Broker Morgan Stanley expects the current consensus analyst estimate of full-year operating profit of £724 million to rise slightly given better revenue growth. 

Annual results to the end of December are scheduled for the 28 February. 

ii view:

Bunzl sells and distributes a wide range of disposable, cleaning and personal protection products to supermarkets, caterers, cleaners and industrial customers. Diversification in its products, business sectors its serves and geographical locations it operates across offer a core strength. It is an active market consolidator, buying 157 companies between 2004 and 2018 at a cost of £3.3 billion.

For investors, reducing sales of higher profit margin Covid-related products is expected to further normalise its operating profit margins in 2022. Significant overseas sales also expose it to currency volatility. 

But its blend of base business and Covid-related sales is continuing to serve it well. Growth enhancing bolt-on acquisitions are ongoing, and the shares currently sit on an estimated forward dividend yield of around 2%, not totally derisory in the current ultra-low interest rate environment. A record of more than 10 years of consecutive annual dividend growth is also worth remembering. In all, this diversified and unrivalled distributor remains worthy of continued long-term investor support. 

Positives: 

• Diversified customer type and geographical location
• Continues to seek growth enhancing acquisitions

Negatives:

• Expects the profit margin to return to around average in 2022
• Subject to currency volatility

The average rating of stock market analysts:

Strong hold