ii view: Bunzl flags a resilient performance

Global distributor Bunzl has seen underlying revenue growth slow. Where next for investors?

Half-year results to 30 June 2019

• Revenue up 4.3% to £4.53 billion
• Adjusted profit before tax up 2.7% to £264.9 million
• Interim dividend payment up 2% to 15.5p per share

Chief executive Frank van Zanten said:

"Against the background of slowing macroeconomic and market conditions across the countries and sectors in which we operate, Bunzl has produced a resilient operating performance with high cash conversion and an increased dividend.

Looking forward, the group's expectations for 2019 remain unchanged. Despite continuing economic uncertainties, the board believes that the combination of our strong competitive position, diversified and resilient businesses and ability to consolidate our fragmented markets will lead to further progress. We have a strong balance sheet and are in active discussions with a number of acquisition targets which we anticipate will result in additional deals during the remainder of the year."

ii round-up:

Bunzl (LSE:BNZL) is a global distributor of non-food consumables like disposable cutlery, cleaning products, and personal protective equipment. It works in more than 30 countries, but North America is its biggest market. The rest of the business is divided into Continental Europe, the UK & Ireland and the Rest of the World. 

For a round-up of these half-year results, please click here.

ii view:

Diversification in the products it distributes, business sectors its serves and geographical locations it operates across prove a core strength at Bunzl.  In addition, a strategy to grow both organically and by focused acquisition has to date served shareholders well.

However, slowing organic growth at its key North American business and reduced bolt-on acquisitions have begun to raise question marks over future growth. The share price is down over 10% year-to-date (YTD).

For investors, a forward price/earnings (PE) ratio marginally below the 10-year average offers some encouragement. A 26-year track record of dividend growth is not to be overlooked either, although the dividend yield is a modest 2.5%. But for now, and despite the tailwind of currency movements aiding profits, investors might want to take a 'wait and see' approach until the rate of growth for organic revenue improves. 

Positives: 

• Diversified customer type and geographical location
• Bunzl boasts a 26-year track record of dividend growth 
• Brexit protection - over 85% of revenue is generated outside the UK 

Negatives:

• Underlying or organic revenue growth has slowed
• Spent £98 million on acquisitions YTD compared to average annual spend £300 million since 2010
• A 2% interim dividend increase compares to 9% last year

The average rating of stock market analysts:

Hold