ii view: Bunzl raises bar for annual revenue

This unrivalled global operator has seen its share price fall year-to-date. We assess prospects. 

First-half trading update to 30 June 

• Expects currency adjusted revenue growth of between 12% to 13%

Guidance:

• Now expects very strong full year revenue growth from a previous moderate growth

Chief executive Frank van Zanten said:

"Bunzl has delivered another period of strong growth. We continue to demonstrate the strength of our business model, supported by the depth and resilience of our supply chains and the agility of our people who have responded to the inflationary environment so successfully. Our acquisition momentum remains strong, with our active pipeline supported by a strong balance sheet."

ii round-up:

Distribution company Bunzl (LSE:BNZL) today flagged expectations for first half currency adjusted revenue growth of between 12% and 13%, driven by inflationary price increases and ongoing bolt-on acquisitions. 

That’s ahead of City forecasts for nearer to 10% and means management has upgraded its full-year revenue expectation to very strong growth from a previous moderate estimate. 

Shares in Bunzl, which distributes products to customers including the National Health Service, Walmart (NYSE:WMT) and Domino's Pizza (LSE:DOM), rose by more than 1% in UK trading having fallen by around 7% year-to-date coming into this latest announcement. The FTSE All share index is down by around 4.5% during 2022.

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Buoyed by revenue growth, Bunzl’s adjusted operating profit margin for the period is expected to be slightly higher than its historical levels.

The FTSE 100 listed company sells and distributes a wide range of disposable, cleaning and personal protection products to supermarkets, caterers, cleaners and industrial customers.

In North America, its biggest geographical region by sales, very strong revenue growth has been maintained. Contract negotiations with its largest customer, likely to be Walmart, were summarised as 'constructive and ongoing'. 

Strong momentum for its European business was also flagged, while moderate growth had been seen for its rest of the world business, with strong growth in Asia offset by Covid issues in Latin America. 

First-half results are scheduled for 30 August. 

ii view:

Tracing its roots back to 1854, today Bunzl employs over 20,000 people. Diversification in its products, business sectors its serves and geographical locations it operates across offer a core strength. North America remains its most important region, generating three-fifths of overall sales and half of adjusted operating profit during its 2021 financial year. It is an active market consolidator, completing 14 acquisitions during 2021, with a committed spend of £508 million, adding an estimated annualised revenue of £322 million.

For investors, an uncertain economic outlook cannot be overlooked. Likely pressure from customers to restrain product price increases warrants consideration. As does its continued negotiations with a major US customer. There's been a curtailing of demand for pandemic items such as masks, while significant overseas sales also expose the company to currency volatility.

On the upside, an ability to pass on cost inflation is being seen, while growth enhancing bolt-on acquisitions continue. A record of more than 10 years of consecutive annual dividend increases is also worth remembering. For now, this diversified and unrivalled distributor looks likely to remain of interest to long-term investors. 

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