ii view: Bunzl shares in reverse despite beating City profit forecasts

Despite an enviable dividend track record, shares for this FTSE 100 company are little changed year-to-date. We assess prospects. 

First-half results to 30 June

• Currency adjusted revenue up 12.4% to £5.65 billion 
• Adjusted operating profit up 12.2% to £411.4 million
• Interim dividend payment up 6.8% to 17.3p per share
• Net debt including lease liabilities rose 3.6% from December 2021 to £1.89 billion

Guidance:

• Expects full-year operating profit margin to be higher than historical levels and only slightly lower than that achieved in 2021

Chief executive Frank van Zanten said:

"Over the period, our teams have been agile in navigating substantial inflation and supply chain disruption, while supporting recovery in the base business and continuing to provide our customers with essential products and services that are crucial to their operations. 

“While mindful of the economic outlook, I believe our talented teams, the inherent resilience of our business model and diversification of our portfolio across sectors and regions, as well as our consistent focus on our strategic priorities, will continue to support the Group's performance and maintain our strong track record of value creation."

ii round-up:

Distribution company Bunzl (LSE:BNZL) today reported increased sales and profits, as growth in both product cost inflation and volumes helped offset an expected fall in Covid related sales such as masks. 

A 12.4% increase in currency adjusted revenues to £5.65 billion helped push a similar rise in adjusted operating profit to £411 million, beating City forecasts for nearer to £399 million. The FTSE 100 company also raised its full-year profit expectation, although still expects it to be slightly lower than that achieved in 2021.

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Shares in Bunzl, which distributes products to customers including the National Health Service, Walmart Inc (NYSE:WMT) and Domino's Pizza (LSE:DOM), fell by more than 4% in UK trading having come into this latest announcement up by close to 8% year-to-date. The FTSE All Share index remains down by more than 2% during 2022.

A 15.4% gain for Bunzl’s base business products helped counter a 6.1% retreat for Covid-related sales. Bunzl sells and distributes a wide range of products including food packaging, catering equipment, and cleaning and hygiene materials such as chemicals and hygiene tissue paper. 

Underlying foodservice and retail-related sales rose by a fifth during the period, aided by significant inflation and a recovery in its day-to-day or base business sales. Grocery and other related underlying sales rose by 11%, while cleaning, hygiene, safety, and healthcare related sales fell 4% given reduced demand for pandemic related sales. 

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Sales for North America, Bunzl's biggest revenue generator, rose by 12.7% to £3.44 billion. A total of six acquisitions during the period for a total of £225 million further added to sales growth. 

Contract negotiations with its largest customer, likely to be Walmart, remain ongoing. 

ii view:

Tracing its roots back to 1854, Bunzl today employs over 20,000 people. It operates in more than 30 countries with over 10,000 global supplier relationships. It supplies non-food products to aid with day-to-day operations to sectors including supermarkets, restaurants, hotels and healthcare. 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, a backdrop of a consumer cost-of-living crisis and a highly uncertain economic outlook cannot be ignored. Likely pressure from customers to restrain product price increases warrants consideration, as does its continued negotiations with a major US customer. A curtailing of demand for pandemic items such as masks is ongoing, while the generation of more than 90% of its adjusted operating profit in overseas markets leaves it exposed to currency movements.

More favourably, an ability to pass on cost inflation is ongoing, while growth enhancing bolt-on acquisitions remain an ongoing theme. A global leader in its market with no competitors of a similar size is something worth remembering, while a record of 29 years of consecutive annual dividend increases is also noteworthy. On balance, this highly diversified and unrivalled distributor looks to remain deserving of continued long-term investor support.   

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