ii view: star distributor Bunzl resumes rally

Shares for this diversified and unrivalled distributor are up by double that of the FTSE 100 index year-to-date. Buy, sell, or hold?

First-quarter trading update 

• Revenue up 13.2% year-over-year
• Adjusted organic revenue up 11%
• Full year guidance unchanged

Chief executive Frank van Zanten said:

"Our entrepreneurial teams have continued to deliver good growth through a combination of passing on substantial inflation and volume growth, supported by recovering markets and with our performance over the last two years further strengthening our competitive position.  Our acquisition pipeline is active and supported by our strong balance sheet."

ii round-up:

Distribution company Bunzl (LSE:BNZL) today detailed strong quarterly revenue growth as both an ongoing recovery in its base business from the pandemic and elevated inflation contributed. 

Overall revenue since the start of the year rose 13.2% year-over-year. Organic, or revenue excluding acquisitions, grew 11%. Sales growth for its base, or core day-to-day products rose 17%, but was partially countered by a 6% fall in its top eight Covid-related products. That broadly matched City forecasts. 

Bunzl shares nudged higher in UK trading having more than doubled since pandemic market lows in March 2020. Year-to-date they are up around 6% compared to a 3% gain for the FTSE 100 index.

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Bunzl, which distributes products to customers including the National Health Service, Walmart (NYSE:WMT) and Domino's Pizza (LSE:DOM), left its full-year 2022 estimates unchanged. It expects moderate revenue growth to be driven by the impact of acquisitions completed in the last 12 months and supported by a slight increase in organic revenue. 

The continued recovery of its base business is forecast to be partially offset by a further normalisation of sales of pandemic related items.

During 2021 Bunzl completed 14 acquisitions with a committed spend of £508 million, adding an estimated annualised revenue of £322 million. 

A first-half trading update will likely be announced mid to late June. 

ii view:

Bunzl sells and distributes a wide range of disposable, cleaning and personal protection products to supermarkets, caterers, cleaners and industrial customers. Diversification in its products, business sectors its serves and geographical locations it operates across offer a core strength. North America remains its most important region, generating three-fifths of overall sales and half of adjusted operating profit during the 2021 financial year. It is an active market consolidator, buying 157 companies between 2004 and 2018 at a cost of £3.3 billion. 

For investors, the outlook is now clouded by a combination of economic, pandemic, and geopolitical tensions. An estimated price/earnings (PE) ratio above the three- and 10-year averages suggests the shares are not obviously cheap, while significant overseas sales also expose it to currency volatility.

On the upside, growth-enhancing bolt-on acquisitions in 2021 of £508 million are above the historical average of between £250 million to £300 million. A historic and estimated future dividend yield in the region of 2% is not completely derisory in an era of still ultra-low interest rates, while a record of more than 10 years of consecutive annual dividend increases is worth remembering. In all, this diversified and unrivalled distributor appears to remain worthy of ongoing long-term investor support.

Positives: 

• Diversified customer type and geographical location
• Continues to seek growth enhancing acquisitions

Negatives:

• Cocktail of economic, pandemic and geopolitical tensions cloud the outlook
• Subject to currency volatility

The average rating of stock market analysts:

Hold