Bunzl: first-half trading update

Shares in support services specialist Bunzl have barely changed over the past year, although they trade barely 10% below last spring’s all-time high and that is largely the result of the solid nature of the FTSE 100 member’s business model.

Bunzl supplies the things that other firms need in order to do business, but not items they would sell to their customers. For example, it supplies disposable coffee cups to cafes, food wrap to supermarkets, hard hats to builders and cleaning materials, bandages and rubber gloves to hospitals. The required nature of the products it provides may shelter the firm from the vagaries of the economic cycle, at least to some degree, and also provide Bunzl with pricing power, a key ingredient during inflationary times.

However, sales growth has slowed a bit of late, as stockpiling during the pandemic has unwound, especially in the US food distribution business, and higher interest rates have weighed on perceived growth stocks such as Bunzl that have, traditionally, traded on premium valuations relative to the rest of the market (even now Bunzl trades on nearly 20 times forward earnings when the UK market trades on 12-13 times).

April’s first-quarter trading update reaffirmed the relatively cautious guidance for 2024 given by chief executive Frank van Zanten alongside February’s full-year results.

It revealed that sales between January and March fell by 5.9% year-on-year, by 2.4% on a constant currency basis and by 5.4% using constant currencies and excluding acquisitions and disposals. Mr van Zanten cited inventory destocking in the USA and a marked cooling of price inflation as key reasons behind the slowdown.

As a result, Bunzl still expects to deliver “slight” revenue growth in 2024, on a constant currency basis, helped by acquisitions already made last year and this year, while sales will dip “slightly” once acquisitions and currency movements are taken into account. For the record, analysts expect total 2024 sales to be £11.9 billion, a fraction above 2023’s £11.8 billion.

Source: Company accounts

After looking at the headline sales number, analysts will then examine the mix in terms of the three main divisions (Foodservice and Retail Sales, Grocery and Cleaning and Hygiene) and the three main geographies – in 2023, the UK and Ireland was the strongest region (underlying sales up 6.1% year-on-year), with America the weakest (down 5.6%) and Europe solid in between (up 1.0%), particularly across foodservice and cleaning and hygiene. Post-pandemic destocking was the reason, alongside a cooling in inflation.

Source: Company accounts

Analysts and investors will then benchmark this statement against the other piece of guidance that Mr van Zanten has offered for 2024, namely that the adjusted operating margin will be (quote) “slightly below” that of 2023, which came in at a record high of 8.0%. For the moment, analysts are looking for annual adjusted operating profit to come in almost flat at £942 million, against £944 million in 2023.

Source: Company accounts

Bunzl is likely to leave any comment upon dividends until the half-year results due on 27 August (when analysts and shareholders will be looking for an increase in the interim payment to set the company on its way to a thirty-second consecutive advance in the annual distribution) but do watch out for an update on acquisitions. Bunzl has traditionally used bolt-on deals to supplement its organic growth and complement its business structure. The firm spent £468 million on 19 acquisitions in 2023 (after £322 million on 12 deals in 2022) and it has already announced one purchase in the UK (Nisbets) and closed out one in Finland (Pamark), as well as the sale of its operations in Argentina.

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