ii view: Bunzl sales buoyed by base business recovery

A rebound in catering and food related sales and two further acquisitions. Buy, sell or hold?

First-half trading update to 30 June

• Expects revenue to be up 1%
• Expects the full year adjusted operating margin to be slightly ahead of historical levels

ii round-up:

Distribution company Bunzl (LSE:BNZL) today flagged an expected rise in first-half revenues as a recovery in its base business, including the foodservice and retail sectors helps to offset an anticipated retreat in Covid related sales.

Revenue for the six months to the end of June is expected to rise by 1% including currency moves, or by between 6% and 7% when adjusting for currency headwinds. 

Bunzl shares rose by more than 2% in early UK trading, leaving them up by around 18% over the last year, ahead of a near-16% gain for the broader FTSE 100 index. Bunzl customers include the National Health Service, Walmart (NYSE:WMT) and Domino's Pizza (LSE:DOM). 

Adjusted operating margin for the period is forecast to be almost 1% higher from two years ago aided by smaller pandemic related orders. 

Revenue guidance, or expectations for the full year, remain unchanged, with underlying revenue forecast to be modestly higher for 2021 compared to that achieved in the pre-pandemic 2019 year.

The adjusted operating margin for the full year is now expected to be slightly ahead of historical levels.

The distributor, which generates just over half of its sales in North America, also announced the acquisition of two further businesses at the end of May. Comax, a UK distributor to the leisure, janitorial, care home and foodservice sectors in the UK and Harvey Distributors, a cleaning & hygiene distributor in Australia.

Including these two latest buys, Bunzl has now acquired six businesses since the start of the year, spending a total of £114 million.

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 a global leader in its market, with no competitors of a similar scale. It is also an active market consolidator. Between 2004 and 2018 it bought 157 companies at a cost of £3.3 billion. Chief executive Frank van Zanten today noted “Growth through acquisitions is an important part of the ongoing strategy for Bunzl. The pipeline for acquisitions remains active, with discussions ongoing." 

For investors, and given the rollout of vaccines and a reopening of industries such as hospitality, Covid related sales such as PPE are not expected to prove as buoyant as those seen in 2020. Significant overseas revenues also expose the company to potentially volatile currency moves. 

But a retreat in Covid related sales is now being countered by a rebound in base business sales such as those to the catering trade. Growth-enhancing bolt-on acquisitions are now back being made and the shares currently sit on a not derisory 2%-plus historic and estimated forward dividend yield. A 5.5% increase in the total 2020 dividend compared to the 2019 payment made for Bunzl's 28th consecutive year of dividend growth. In all, while market dips may offer better buying opportunities, Bunzl looks to remain worthy of a place in many diversified long-term focused portfolios. 

Positives: 

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

Negatives:

• Subject to currency volatility
• Net debt including lease liabilities over 2020 rose by 1.5% to £1.75 billion

The average rating of stock market analysts:

Strong hold