■ Revenue growth of 6 per cent expected for 2014
■ Acquisition of Canadian cleaning and hygiene business Acme Supplies
■ Operating margin for the year should be slightly higher than in 2013
Shares in Bunzl (BNZL) dropped by about 2 per cent on the morning it confirmed growth expectations for the year to December. The group, which supplies schools, hospitals and hotels with items ranging from cleaning products to food packaging, said it expects revenue growth of about 6 per cent in 2014 at constant currencies. This includes 2.5 per cent of growth from underlying trading and 3.5 per cent from acquisitions.
This follows a strong performance by the group during the first half, with operating profits up 13 per cent at constant currencies to £197m. This was primarily due to impressive growth in its rest of the world segment, particularly South and Central America.
As usual, the low-key FTSE 100 group also announced a small bolt-on acquisition alongside the pre-close update. It bought a Canadian cleaning and hygiene business called Acme Supplies that reported revenue of C$16m (£8.7m) for the year ended 30 November 2014. The group has now completed 14 acquisitions so far this year with total annual revenues of around £160m.
Investec says…
Buy. Given the strong run Bunzl stocks enjoyed in the run-up to this pre-close statement, investors should not be too worried that the shares fell on the day. Currency tailwinds suggest some scope for revising up expectations for next year. The group has favourable geographic exposure compared with others in the FTSE 100, since 56 per cent of its revenues come from the US, and the dollar is moving in the right direction. The shares are trading at a premium, but that's justified by Bunzl's strong 10-year track record, which suggests it should be considered more as a consumer staple than as a support services company. Expect EPS of 83p for the full year.
JP Morgan Cazenove says…
Hold. Trading is reassuring and organic revenue growth has increased. Moreover, we believe the group can continue to grow, both by consolidating a fragmented sector and organically, as outsourcing gains further favour in its existing non-consumables markets. However, we estimate that Bunzl has spent only £140m on acquisitions so far this year, compared with £295m for the 2013 full year. This is less than expected - though the outlook for future acquisitions looks positive. Bunzl's shares also trade on 21 times 2015 earnings - a premium to the two other distributors we follow (Brenntag on 17 times and DCC on 15 times).
