Resilience pays off for sky-high Bunzl

With the dividend up for a 26th year, resilient Bunzl has shown why it is a blue-chip success story.

Having been among the frontrunners in the FTSE 100 index last year, solid and dependable Bunzl (LSE:BNZL) continues to highlight its credentials as a stock for uncertain economic times.

Today's full-year results extended the record of dividend growth at the distribution and outsourcing group to an impressive 26th year, following the latest increase in the pay-out of 9% to 50.2p a share. This is in line with the better-than-expected 9% rise in underlying earnings per share to 129.6p.

Revenues improved 6% to more than £9 billion on the back of Bunzl's trusted recipe of strong organic growth and acquisitions. As well as Bunzl's "strength, resilience and reliability", CEO Frank van Zanten said the long-term success owed much to the compounding effect of being able to reinvest strong cash flows into market consolidation opportunities.

Against this background of steady profits and dividends growth, Bunzl shares rose by 14% in 2018 before extending their run to as high as 2,539p at the end of last week. The blue-chip stock fell 4% from this record today amid concerns that rising costs are having an impact on the operating margin, which slipped 10 basis points to 6.8% in today's results.

Analysts at Citi, however, remain confident that margins will recover this year, helped by restructuring efforts in North America, where Bunzl generates 58% of its business.

They have lifted their target price from 2,700p to 2,850p on the back of today's results. Citi added:

"We continue to view Bunzl as a business services core holding, with excellent operational resilience, impressive cash conversion and significant opportunity to consolidate its markets."

Bunzl stepped up that consolidation today with the acquisition of personal protection equipment firm Liberty Glove, which has annual revenues of £70 million and margins of about 12%.

The move comes after the company made six acquisitions in 2018 totalling £183 million, adding annual revenues of £148 million. This follows a record year in 2017, when it spent £616 million.

Bunzl also sought to reassure investors about its Brexit-defensive qualities today, pointing out that it was "unlikely to be affected materially" by the UK's exit from the European Union.

While Bunzl is a UK headquartered company, more than 85% of the group's revenue, profit and cash flow is generated outside the UK. Within the UK, less than 20% of the products purchased are direct imports from overseas, of which most are from countries outside of the EU.

The company added:

"Bunzl is highly decentralised, with each business in the group operating as a standalone company, largely focused on customers in the country in which it is incorporated."

Bunzl's two biggest markets are in food services and grocery, with the company supplying a wide range of packaging, equipment and other supplies that are used by caterers or retailers but not actually sold.