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Bunzl has the firepower to keep acquiring

The company is returning cash and doing more deals
February 27, 2023
  • Dividend to increase by 10 per cent
  • Two more businesses bought since year-end

Bunzl’s (BNZL) ability to throw off cash is impressive. Even after a spend of £322mn on 12 acquisitions last year (bringing the total since 2004 to £6.7bn) and £190mn of dividend payments, the company saw a cash inflow of £269mn. Its cash conversion ratio (the amount of lease-adjusted operating profit turned into cash) stood at 107 per cent.

This gives it plenty of options. In the first instance, it is upping its dividend by 10 per cent to 62.7p a share, making it one of only three FTSE 100 companies that has increased its dividend for each of the past 30 years, chief executive Frank van Zanten said.

And given its relatively low level of leverage – net debt fell to 1.2 times earnings, from 1.6 times a year earlier – “we’ve got a lot of firepower” to do more deals, van Zanten said.

Indeed, it has just added two new companies to its portfolio – German online personal protective equipment retailer Arbeitsschutz-Express and Canadian food packaging firm Capital Paper, bringing in an additional £51mn of revenue between them.

Van Zanten expects more opportunities in this sphere, with many company owners reassessing their future in the wake of the pandemic. Some who thought they were financially secure suffered revenue declines of 80 or 90 per cent when lockdowns occurred, making them realise they had “all of their wealth eggs in one basket”, he said. After recovering to 2019 levels of profitability, “a lot of them will want to sell”.

Bunzl's acquisition activity has certainly picked up, having spent an annual average of £425mn on deals over the past three years, compared with £300mn a year between 2017 and 2019.

Yet if leverage continues to consistently fall, Bunzl will “consider other mechanisms for distributing excess cash to shareholders”, van Zanten said.

This may not be immediate, given that higher interest rates are pushing up borrowing costs to £90mn-£95mn, from £67.9mn last year. This means earnings per share (EPS) for the current year are likely to be weaker, despite a “slightly higher” operating margin, the company said.

The FactSet consensus forecast is for a 5 per cent EPS decline this year and, after a 10 per cent year-to-date gain, Bunzl shares are now trading slightly ahead of their five-year average. Its track record is unblemished, but priced in. Hold.

BUNZL (BNZL)    
ORD PRICE:3,079pMARKET VALUE:£10.4bn
TOUCH:3,079-3,080p12-MONTH HIGH:3,249pLOW: 2,542p
DIVIDEND YIELD:2.0%PE RATIO:22
NET ASSET VALUE:806p*NET DEBT:60%
Year to 31 DecTurnover (£bn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
20189.0842598.450.2
20199.3345310551.3
202010.155512954.1
202110.356913357.0
202212.063514262.7
% change+17+12+7+10
Ex-div:18 May   
Payment:04 Jul   
*Includes intangible assets of £3.09bn, or 916p a share