ii view: Bunzl shares in reverse

Full-year trading update

• Expects revenue growth of 3%
• Expects an operating profit margin marginally higher than 2023
• £50 million of a previously announced £250 share buyback still to execute

Chief executive Frank van Zanten said:

"2024 will be another year of significant progress for Bunzl, demonstrating the continued growth and resilience of the business model.”

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ii round-up:

Distribution company Bunzl (LSE:BNZL) today detailed steady customer volume demand but with higher-than-expected pricing pressures impacting.

Fourth quarter revenue growth stripped of acquisitions is expected to come in at 1%, below City expectations of about 2%. Bunzl expects the pricing pressure to have a slight impact on full year adjusted operating profit, driven by Continental Europe.

Shares for the FTSE 100 company fell 5% in UK trading having come into this latest news up around 12% year-to-date. The 100 index itself is up 6% during 2024, below an 18% gain for the FTSE All World index year to date.

Bunzl sells and distributes a wide range of non-food consumables such as napkins, disposable cutlery and cleaning products which other companies need to run their businesses. Group customers include Walmart Inc (NYSE:WMT), Domino's Pizza Group (LSE:DOM) and the NHS.

Group revenues for the full year 2024 are expected to be approximately 3% higher than in 2023,  driven by record bolt-on acquisitions over the year of more than £850 million. 

A strong increase in full year adjusted operating profit is expected by Bunzl on a constant currency basis, fuelled by an increased margin of around 8.3% and up from 2023’s 8%. 

Looking ahead, Bunzl pointed to expected robust 2025 revenue growth, pushed by announced acquisitions, with the profit margin forecast to stay unchanged from 2024. 

Full year 2024 results to 31 December are likely to be announced late February. 

ii view:

Started in 1854 by Moritz Bunzl as a Slovakian haberdashery, Bunzl today employs more than 20,000 people globally. The FTSE 100 company sells and distributes products including food packaging, catering equipment, and cleaning and hygiene materials such as chemicals and hygiene tissue paper. North America generated its biggest slug of sales during 2023 at 59%, followed by Europe at 20%, the UK and Ireland 12%, and the Rest of the World the balance of 9%. 

For investors, soft European pricing, and likely pushed by underlying consumer pressures for customers such as restaurant operators, is not to be overlooked. The end of the pandemic and reduced demand for items such as face masks has made for tough recent year-over-year comparatives. Net financing costs rose £27 million over its last financial year given higher interest rates on debt, while exposure to currency movements cannot be ignored given that most of its sales are generated overseas.

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On the upside, Bunzl remains a global leader in its market with no competitors of a similar size. Ongoing acquisitions are helping to fuel growth, group net debt fell 6% over its last financial year, while the dividend payment has increased for more than 30 consecutive years, leaving the shares sat on an estimated future dividend yield of around 2.1%.  

In all, and despite ongoing risks, this unrivalled global 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