Interactive Investor

ii view: Bunzl shares drive higher as profit hopes improve

A global leader in its market with no competitors of a similar size and boasting an enviable dividend growth track record. Buy, sell, or hold?

14th December 2023 11:29

Keith Bowman from interactive investor

Full-year trading update to 31 December

Chief executive Frank van Zanten said:

"I'm pleased with the performance Bunzl has delivered this year, reflecting the dedicated efforts of our people in supporting our customers around the world. The Group is on track to deliver moderate adjusted operating profit growth, supported by a record operating margin.”

ii round-up:

Distribution company Bunzl (LSE:BNZL) today upgraded its full-year profit hopes and announced three bolt-on acquisitions.

Aided by high margin acquisitions, the adjusted profit margin for the year ahead is also now expected to prove broadly in line with the record 7.8% level achieved in 2023, with some revenue growth forecast. 

Shares in the FTSE 100 company rose by more than 2% in UK trading having come into this latest news up just over a tenth year-to-date. That compares to a near 2% gain for the FTSE 100 index itself during 2023.

Bunzl sells and distributes a wide range of products which other companies need to run their businesses. Its customers include Walmart Inc (NYSE:WMT) and Domino's Pizza Group (LSE:DOM)

Recently completed acquisitions include the £10 million purchase of an Australian distributor of cleaning & hygiene supplies, and the £3 million purchase of a North American company which specialises in the distribution of flexible signposts and bollards. 

Bunzl’s total acquisitions for 2023 now total 17, with a cumulative £1.7 billion spent over the last three years. 

Full-year results are scheduled to be announced on 26 February. 

ii view:

Tracing its history back to 1854, when Moritz Bunzl opened a small haberdashery business in Bratislava, now the capital of Slovakia, the company today employs more than 20,000 people globally. The FTSE 100 company sells and distributes items 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 at around three-fifths, followed by Europe at just under a fifth, the UK and Ireland at just over a tenth and the rest of the world the balance of just under a tenth.

For investors, the end of the pandemic and therefore reduced demand for items such as face masks has put some pressure on revenues. Exposure to currency movements should also not be ignored given that most of its sales are generated overseas. Net financing costs as of its previous half-year results rose due to higher interest rates on group debt, while an estimated price/earnings (PE) ratio above the three-year average suggests the shares are not cheap.  

On the upside, continued acquisitions are helping to fuel growth. Bunzl remains a global leader in its market with no competitors of a similar size, group net debt fell as of its previous half-year results, while the dividend payment has increased for 30 consecutive years, leaving the shares offering a forecast dividend yield of around 2%.  

On balance and despite ongoing risks, 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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