ii view: confident Bunzl delivers further share price recovery

First-half results to 30 June

• Currency adjusted revenue up 4% to £5.76 billion
• Adjusted operating profit down 11% to £405 million
• Interim dividend up 0.5% to 20.2p per share
• Share buyback resumed with £86 million of a £200 million 2025 programme left to complete
• Net debt down 1% from 31 December 2024 to £1.59 billion

Guidance:

• Continues to expect full-year 2025 operating profit margin moderately below 8%, down from 8.3% in 2024
• Continues to expects a slowing in the rate of decline for the operating profit margin in the second half compared to the first half

Chief executive Frank van Zanten said:

“Notwithstanding a challenging first half for Bunzl, and the ongoing uncertain macro economic backdrop, our teams are very focussed on improving performance, and I remain confident in Bunzl's underlying resilience and strong business model, and its ability to deliver consistent compounding growth in the medium-term."

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ii round-up:

Bunzl (LSE:BNZL) today resumed a share buyback programme, as the global distributer continued to predict a slower rate of decline in operating profit margin over the second half given ongoing performance improvement initiatives. 

The remaining £86 million of a £200 million 2025 share buyback programme will now be completed by year-end, with further initiatives focused on areas such as selling higher margin own-branded goods to customers. First-half adjusted operating profit to 30 June fell 11% to £405 million, broadly matching City estimates.

Shares in the FTSE 100 distributor of items like paper towelling and cleaning products rose 4% in UK trading having come into these latest results down 25% year-to-date. Shares fell sharply in April when Bunzl downgraded guidance and paused its share buyback programme. The FTSE 100 index is up 12% so far this year. 

Operating across more than 30 countries, Bunzl supplies non-food consumables products to businesses and organisations such as Walmart Inc (NYSE:WMT), Domino's Pizza Group (LSE:DOM) and the NHS. 

Management continues to expect a full-year 2025 operating profit margin moderately below 8%. That’s down from 2024’s 8.3%, although with the second-half performance aided by actions being taken across North America and Continental Europe.

An interim dividend of 20.2p per share is up from 20.1p a year ago and payable to eligible shareholders on 5 January.

Five acquisitions announced year-to-date, including a move to supply the healthcare sector in Chile, leave its total committed spend at £120 million. 

Group net debt fell 1% from late December to £1.59 billion, with an expected year end ratio of net debt-to-adjusted profit (EBITDA) of 2 times at the bottom end of management’s 2.0-2.5 times target range. 

A third-quarter trading update is scheduled for 21 October. 

ii view:

Started in 1854 by Moritz Bunzl as a Slovakian haberdashery, group today employs over 25,000 people in its supply of more than 15,000 global businesses and organisations. Its six core markets range from grocery, foodservice and safety, to retail, cleaning & hygiene, and health. Geographically, North America accounted for most sales in 2024 at 56%, followed by Europe at 20%, the UK and Ireland 14%, and the Rest of the World 10%.   

For investors, a combination of trade tariff uncertainties and cuts to US government jobs may now be dampening US consumer appetite to spend, including eating out at restaurants that could be supplied by Bunzl. Increased NI staff taxes for the UK business now raise costs. Bolt-on acquisitions to boost sales growth are not guaranteed, while a ratio of net debt-to-adjusted profit at the end of 2024 of 2.1 times was up from 1.6 times in late 2023, underpinning management’s previous caution in halting the £200 million 2025 share buyback programme. 

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To the upside, group initiatives to improve performance are ongoing. Bolt-on acquisitions continue to be made, including a foodservice supplier in Spain and a personal protective equipment supplier in Mexico. Bunzl’s position as a global leader in its market with no competitors of a similar size is not to be overlooked, while more than 15 years of consecutive dividend increases leave the shares on a forecast dividend yield of around 3%.

In all, and despite ongoing risks, this unrivalled distributor continues to justify its place in many already 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