ii view: Bunzl shares boom following results upgrade

It's finding more smaller companies to buy and has raised the dividend again. Buy, sell or hold?

Full-year results to 31 December 2021

• Revenue up 1.7% to £10.3 billion
• Adjusted operating profit down 3.3% to £753 million
• Operating profit up 0.8% to £623.3 million
• Final dividend of 40.8p per share
• Total dividend for the year up 5.4% to 57p
• Net debt excluding lease liabilities rose 6.6% to £1.34 billion

Guidance:

• Expects moderate revenue growth over 2022
• Expects operating margin in 2022 to be slightly higher than historical levels

Chief executive Frank van Zanten said:

"Our adjusted operating profits in 2021 were 23% higher than in 2019, at constant exchange rates, driven by both underlying revenue growthⱡ and acquisition revenue growth, with almost £1 billion of committed acquisition spend over this two-year period. 

"I am pleased that we have made good strategic progress despite pandemic-related challenges, particularly with the acceleration of our sustainability ambitions. In 2021 we joined the UN's race to zero and continued to help our customers transition products to more sustainable materials supported by our expert advice, data and innovation. 

"Bunzl has further strengthened its value-added proposition through the pandemic and we look to the future with confidence given our consistent compounding growth strategy."

ii round-up:

Distribution company Bunzl (LSE:BNZL) today delivered full-year results broadly matching City forecasts, but raised its expectations for the year ahead given both the contribution from previous acquisitions and a tailwind from elevated inflation. 

The FTSE 100 company now expects moderate revenue growth over 2022, with the operating profit margin to be slightly higher than historical levels. That’s better than previous expectations of revenue being slightly higher and the profit margin being in line with historical levels. 

Bunzl shares rose by more than 5% in UK trading, having more than doubled since pandemic market lows in March 2020. Its shares year-to-date are up marginally compared to a 2% loss for the FTSE All-Share index. Bunzl distributes products to customers including the NHS, Walmart (NYSE:WMT) and Domino's Pizza (LSE:DOM). 

Group products include packaging, catering equipment and safety wear, including pandemic personal protective equipment or PPE such as masks and gloves. 

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A recovery in its base business, including the foodservice and retail sectors, and supported by inflationary price rises, helped offset an anticipated slowing in Covid related sales in 2021. It also continued to benefit from enhanced hygiene trends.

Over the past year, Bunzl completed 14 acquisitions with a committed spend of £508 million. They will add around £322 million of annualised revenue, driving the upgrade to 2022 sales estimates. Inflation across items such as paper and chemical products is feeding into expanded profit margin estimates over 2022. 

Broker Morgan Stanley expects the City’s consensus estimate for full year 2022 operating profit to rise by between 1% to 2% to between £755 million and £760 million.  

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 it serves and geographical locations offer a core strength. North America remains its most important region, generating three-fifths of overall sales and half of adjusted operating profit in this latest 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. Net debt is up marginally, and significant overseas sales also expose it to currency volatility. 

More favourably, growth enhancing bolt-on acquisitions in this latest year of £508 million are above the historical average of between £250 million to £300 million. An historic and estimated future dividend yield in the region of 2% is still not bad in an era of 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 looks to remain worthy of 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