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Bunzl spent more than £160m on acquisitions last year and is keeping up that pace this year. It spent more than £19m on three more businesses in the first half of the year, and the recent King Benelux and Coffee Point deals have taken the total acquisition spend this year past £140m.
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This has meant higher borrowing and higher interest charges, which held back profit growth, and there was a hit from currency movements too. At constant exchange rates, turnover would have risen 14 per cent in the period and profits by 8 per cent.
Divisionally, Bunzl saw strong growth in the UK and Ireland, though the recent low-margin Southern Syringe acquisition held profits back. Margins were better in Europe, especially in France, and the group managed organic growth and contract wins in Australasia. Bunzl is expecting margin improvements in North America and good organic growth in the UK and Ireland, helped by margin improvement at Southern Syringe. With Coffee Point, Bunzl is now the leading vending operator in the UK, while King Benelux is a big boost to its presence in healthcare and contract cleaning on the continent.
Forecasts have been raised slightly - Citigroup expects full-year pre-tax profits of £211m and has lifted its EPS forecast from 41.7p to 42.3p.
BUNZL (BNZL) |
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|---|---|---|---|---|
| ORD PRICE: | 681p | MARKET VALUE: | £2.23bn | |
| TOUCH: | 680-682p | 12-MONTH HIGH: | 742p | LOW: 623p |
| DIVIDEND YIELD: | 2.6% | PE RATIO: | 18 | |
| NET ASSET VALUE: | 139p* | NET DEBT: | 109% | |
| Half-year to 30 Jun |
Turnover (bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2006 | 1.60 | 88.1 | 17.5 | 5.30 |
| 2007 | 1.73 | 89.1 | 18.3 | 5.80 |
| % change | +8 | +1 | +5 | +9 |
Ex-div:14 Nov Payment: 4 Jan *Includes intangible assets of £784m, or 239p a share |
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Underlying prospects look good. However, Bunzl is likely to spend around £250m on acquisitions and share buy-backs this year and the acquisitions need to prove themselves. So, on a forward PE of 16, the shares are fairly priced.
Last IC view: Fairly priced, 691p, 2 March 2007
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-IC-1.6.1b-prod - 17/12/2008 12:46:12 - jonathan.furseftb
