Base boost benefits Bunzl

Covid-19 was kinder to Bunzl (BNZL) than to many of its peers. The distribution and outsourcing group enjoyed a strong first half of 2020 as people scrambled to secure supplies of facemasks, gloves, sanitiser and other safety items as the pandemic took hold. Predictably, revenue from this part of the business fell in the first half of this year, but was more than offset by a bounce in its base business, as shops and restaurants reopened. Bunzl’s sales were up 6.3 per cent at constant exchange rates to £4.87bn, with revenue from Covid-19-related products down 3.9 per cent, while the top-line contribution from its foodservice and retail business lines, which make up 36 per cent of the group total, increased by 13 per cent year on year. There was progress further down the income statement as operating profits were 9 per cent to the good at £304m, with the underlying margin widening by 50 basis points to 7.5 per cent. 

Bunzl continues to throw off cash, allowing it to increase its half-year dividend by 2.5 per cent to 16.2p. Loan repayments increased by around a quarter to £131m, while a £34m purchase of employee trust shares contributed to a net cash outflow, although the debt multiple fell to 1.4 times cash profits, down from the year-end and substantially below its long-term target range of 2-2.5 times. It has plenty of headroom “to self-fund further acquisitions”, according to chief executive Frank van Zanten. The group is indeed building through acquisitions and announced the purchase of two distributors of personal protective equipment based in Spain – Proin Pinilla and Arprosa, which generated annual sales of £15m and £7m, respectively.

This brings the total number so far this year to eight, with an outlay of £134m on companies with annual revenues of £127m. He expects acquisitions to drive a “strong increase” in total revenue compared with 2019 and for operating margins to be slightly ahead of historic levels, before normalising in 2022. Van Zanten sees scope for further deals to drive growth both in existing and new markets as the business looks to capitalise on “enhanced hygiene trends” and demand for more safety equipment as government stimulus measures boost infrastructure spending.

FactSet consensus estimates are for earnings per share (EPS) of £1.43 this year, indicating a forward price/earnings (PE) multiple of 18 times forecast earnings. This is below its five-year average but largely in line with peers. Another solid, if unspectacular, interim return. Hold.

Last IC view: Hold, 2,230p, 01 Mar 2021