Interactive Investor

ii view: Bunzl makes slow start to 2024 in North America

Boasting an enviable dividend growth track record and with acquisitions helping to fuel growth. We assess prospects.

26th February 2024 11:58

Keith Bowman from interactive investor

Full-year results to 31 December

  • Revenue down 2% to £11.8 billion
  • Adjusted operating profit up 6% to £944 million
  • Final dividend up 10.4% to 50.1p per share
  • Total dividend for the year up 9% to 68.3p per share 
  • Net debt down 6% to £1.09 billion

Chief executive Frank van Zanten said:

“Bunzl's consistent, compounding model drives both growth and resilience, and the progress we have made in recent years, combined with the strength of our financial position, means that we have a stronger platform than ever to drive market share, consolidate fragmented markets and continue to extend our successful track record for creating long term sustainable value."

ii round-up:

Distribution company Bunzl (LSE:BNZL) today flagged a slower-than-expected start to 2024 at its North American business as well as detailing the £339 million purchase of an 80% stake in UK catering equipment business Andrew Nisbet.

Sales stripped of acquisitions are now expected be slightly down on 2023 compared to its prior forecast for a marginal gain, although the profit margin is now only slightly below 2023 and fractionally better than previously forecast. 

Shares in the FTSE 100 company fell 5% in UK trading having come into this latest news up by a tenth over the last year. That’s better than a 2% fall for the FTSE 100 index. 

Bunzl sells and distributes a wide range of non-food consumables such as disposable cutlery and cleaning products which other companies need to run their businesses. Customers include Walmart Inc (NYSE:WMT) and Domino's Pizza Group (LSE:DOM)

Sales for 2023 fell 2% to £11.8 billion, including a 1% fall for cleaning & hygiene products in the aftermath of the pandemic, with increased penetration of its own higher margin brand products helping adjusted operating profit up 6% to £944 million.

A final dividend of 50.1p takes the total 2023 payment up 9% to 68.3p per share. Bunzl also confirmed a move into Finland, its 33rd country of operation, with the January acquisition of Pamark, a distributor of cleaning & hygiene, healthcare, foodservice and safety products for an unspecified sum. 

Bunzl agreed 19 acquisitions in 2023 for a total committed spend of £468 million, adding an estimated annualised revenue of £325 million. Its net debt to adjusted profit (EBITDA) ratio stood at 1.1 times as of the year end.  

A first-quarter trading update is likely to be announced at its AGM in mid to late April. 

ii view:

Bunzl employs over 20,000 selling and distributing products including food packaging, catering equipment, and cleaning and hygiene materials such as chemicals and hygiene tissue paper. North America generates its biggest slug of sales and operating profit at 59% and 54% respectively, followed by Europe at 20% and 23%, the UK and Ireland at 12% and 11%, and the rest of the world at 9% and 12%.

For investors, the end of the pandemic reduced demand for items such as face masks has made for tough comparatives. Exposure to currency movements should not be ignored given that most of its sales are generated overseas. Net financing costs rose £27 million year-over-year given higher interest rates on debt, while an estimated price/earnings (PE) ratio above the three-year average may suggest the shares are not cheap.  

On the upside, Bunzl remains a global leader in its market with no competitors of a similar size. Ongoing acquisitions are helping to fuel growth, group net debt fell 6% year-over-year, while the dividend payment has increased for 31 consecutive years, leaving the shares offering a forecast dividend yield of just over 2%.  

For now, and while tough comparatives from the pandemic persist, this unrivalled distributor looks to remain deserving of its place in diversified investor portfolios. 

Positives: 

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

Negatives:

  • Uncertain economic outlook
  • Subject to currency volatility

The average rating of stock market analysts:

Hold

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