ii view: FTSE 100 distributor Bunzl demonstrates resilience

Serving customers such as supermarkets, restaurants and hotels, we assess prospects for this global product seller to major businesses. 

Full-year trading update to 31 December

Chief executive Frank van Zanten said:

"Bunzl's performance over the year has continued to demonstrate the strength and resilience of the Bunzl business model. Our teams have successfully navigated the inflationary environment and supply chain disruption experienced this year to ensure customers have reliably received the essential products they need.”

ii round-up:

Distribution company Bunzl (LSE:BNZL) today pointed to 2022 earnings marginally above its prior forecast, but flagged its expectation for a slight fall in 2023 earnings given both higher interest rates and a higher tax rate. 

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Bunzl, which sells and distributes products which other companies need to run their businesses, fell around 1% in UK trading to leave the shares down around 3% year-to-date. That’s similar to the FTSE All Share index in 2022.  

The company, whose customers include the National Health Service and Domino's Pizza Group (LSE:DOM), remains in contract negotiations with its largest customer, most likely US retail giant and customer Walmart Inc (NYSE:WMT). 

Revenues for 2022 are expected to rise by 17% year-over-year, helped by product price increases and ongoing bolt-on acquisitions. Sales for 2023 are forecast to be slightly higher than in 2022, again aided by bolt-on acquisitions.

Bunzl earlier in December announced four bolt-on acquisitions along with the sale of its UK healthcare division to Dutch firm Mediq. It committed more than £280 million towards acquisitions over the year, with its pipeline remaining active. 

Full-year results are likely to be announced late February. 

ii view:

Bunzl employs over 20,000 people and operates in more than 30 countries with over 10,000 global supplier relationships. 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 most sales at around three-fifths, followed by Europe at around a fifth and the UK and Ireland at just over a tenth. 

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For investors, headwinds including rising costs, high interest rates and taxes. Likely pressure from customers to restrain product price increases also warrants consideration, as does continued negotiations with major customer Walmart. A curtailing of demand for pandemic items such as masks has occurred, while the generation of most sales overseas also leaves it exposed to currency movements.

On the upside, an ability to pass on cost inflation has been seen, while growth enhancing bolt-on acquisitions continue. A global leader in its market with no competitors of a similar size remains noteworthy, as does a record of more than 20 years of consecutive annual dividend increases. 

In all, 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