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Bunzl slowdown fears may be overdone

The global distribution and services group's revenue growth slowed in the first quarter of 2019
April 18, 2019

Bunzl (BNZL) has revealed that revenue growth slowed to 2.5 per cent on a constant-currency basis in the first quarter of 2019, with management citing “mixed macroeconomic and market conditions” across its operating regions.

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Underlying revenue growth in Continental Europe, UK and Ireland and the 'Rest of the World' declined to 2 per cent, down from 3.5 per cent in the last quarter of 2018. The contraction was most notable in North America, which accounted for 58 per cent of revenue in 2018, as a lack of volume growth and product price inflation adversely impacted grocery and retail sales. Underlying growth here fell from 3 per cent last year to 1 per cent in the first quarter of 2019.

With operating cost inflation squeezing North American margins in 2018, the recent depressed revenues may fuel investor anxiety over further pressure. The areas of weaker revenue growth are the two largest sectors, of grocery and retail, both inherently lower margin. However, Shore Capital's Robin Speakman said: "If [the decline is] led by grocery and retail but other segments, which are higher margin are still growing well... there should be slight positive on margin mix."

Around 1 per cent of underlying revenue growth came via acquisitions during the first quarter. The group acquired Netherlands-based specialist packaging distributor Coolpack for an undisclosed figure during the period and with a “promising” pipeline, the group expects more acquisitions this year. Mr Speakman expects the group to target "underweight" areas such as Europe, sustained by strong cash generation.

House broker JPMorgan Cazenove argues that owing to its diverse sector and geographical footprint, the group's revenue growth is characterised as “GDP+”, typically tracking 1 per cent ahead of the global economy – given the challenging macroeconomic backdrop, the downturn in performance was not entirely unexpected. Meanwhile, Mr Speakman contends that management was forthcoming about weaknesses, but the market's overconfidence meant it was caught off-guard by the level of the first-quarter decline.