ii view: Bunzl stuck in slowing trend

This distributor has hit a rough patch. Is a strategy of organic growth and acquisitions enough?

First-half trading update to 30 June 2019

ii round-up:

Bunzl (LSE:BNZL) is a global distributor of non-food consumables like disposable cutlery, cleaning products, and personal protective equipment. It works in more than 30 countries, but North America is its biggest market. The rest of the business is divided into Continental Europe, the UK & Ireland and the Rest of the World. 

Customers include huge names like Sodexo (EURONEXT:SW), Walmart (NYSE:WMT), Hilton, Domino's Pizza LSE:DOM and the National Health Service.

Its strategy has been to pursue both organic and acquisition growth, and it's been pursuing the latter with gusto. Bunzl has acquired 157 companies between 2004 and 2018 at a total cost of £3.3 billion. Total committed spend so far this year is approximately £100 million. 

We're told that trading for the current first half should see total revenues grow by approximately 4% at actual exchange rates. Expectations for the full year remained unchanged, with Bunzl still suffering the same slowdown in underlying revenue growth indicated at the time of its first quarter update in April. Initial reaction to its latest report has been similarly negative. 

ii view:

Bunzl has rewarded loyal shareholders with spectacular share price gains for as long as one can remember. However, concerns about slowing growth at its key North American business now overshadow bright spots elsewhere. A well established and successful strategy to grow both organically and by acquisition offer some compensation. That said, Bunzl shares are never cheap and the company must work on rebuilding its reputation as a reliable performer.

Positives:

• Bunzl boasts a 26-year track record of dividend growth 
• Brexit protection - over 85% of revenue is generated outside the UK 

Negatives:

• Revenue growth has slowed, especially in North American grocery and retail sectors
• Profit fell 2% at its UK and Irish business in 2018

The average rating of stock market analysts:

Hold