ii view: distributor Bunzl delivers 10% dividend increase

Diversity of both customer type and geographic region and with an enviable dividend growth track record. Buy, sell, or hold?

Full-year results to 31 December

• Currency adjusted revenue up 10% to £12 billion
• Adjusted pre-tax profit up 11% to £818 million
• Final dividend up 11% to 45.4p pe share
• Total 2022 dividend up 10% to 62.7p per share
• Net debt excluding lease liabilities down 13% to £1.16 billion  

Chief executive Frank van Zanten said:

“We have made further strategic progress, increasing the percentage of digital customer orders, and further supporting customers with the transition towards products that are better suited to the circular economy.”

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ii round-up:

Distribution company Bunzl (LSE:BNZL) today detailed gains in both sales and profit allowing it to raise its dividend for the 30th consecutive year running.

A near 12% increase in sales for its base or core business including products for restaurants and supermarkets helped offset a 5% fall in Covid-19 related items, such as masks. That pushed an 11% improvement in annual adjusted pre-tax profit to £818 million and fuelled a 10% increase in the total 2022 dividend payment to 62.7p per share. 

Shares for the FTSE 100 company rose by more than 2% in afternoon UK trading having come into this latest announcement up by around 10% year-to-date. That compares to a 6% gain for the FTSE 100 index itself during 2023. 

Bunzl sells and distributes products which other companies need to run their businesses. Its customers include Walmart Inc (NYSE:WMT), the National Health Service and Domino's Pizza Group (LSE:DOM). 

A recovery in both customer demand and increased product prices to counter cost inflation fed into annual sales of £12 billion compared to 2021’s £10.3 billion. 

Management’s forecasts for 2023 were left unchanged. Sales are expected to be slightly higher than in 2022 but with adjusted earnings per share moderately lower due to higher tax and interest bills. 

Bunzl also announced two further bolt-on acquisitions. German online distributor of workwear and PPE, Arbeitsschutz-Express, and Canadian distributor of foodservice and industrial packaging, Capital Paper, are being acquired. These add to the 12 acquisitions it made over 2022 for a committed spend of £322 million. 

A first-quarter trading update is scheduled for 26 April. 

ii view:

Tracing its roots back to 1854, Bunzl today employs more than 20,000 people in over 30 different countries. It 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. North America generates its biggest slug of sales at around three-fifths of the total, followed by Europe at just under a fifth and the UK and Ireland at just over a tenth.  

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For investors, likely pressure from customers to restrain product price increases needs to be remembered. Headwinds including elevated costs, interest rates and taxes all warrant consideration. As do falling high profit margin product sales relating to the pandemic and its exposure to currency movements given that most of its sales are generated overseas.  

More favourably, Bunzl remains a global leader in its market with no competitors of a similar size. An ability to pass on cost inflation is evident. Growth enhancing bolt-on acquisitions continue, while its dividend growth track record remains enviable even if the estimated future dividend yield is only around 2.2%.   

On balance, this highly diversified and unrivalled distributor looks to remain deserving of 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