Morningstar | 3Q Exactly as Ordered for Narrow-Moat Bunzl
Bunzl, the global leader in nonfood consumables, delivered a solid third-quarter trading update, with organic revenue growth of 4% supplemented by growth from acquisitions of a similar magnitude. While currency movements pegged this increase back by around 3%-4%, these numbers are very much in line with our expectations for the full year. As such, we do not expect to make any material changes to our estimates nor to our GBX 2,160 fair value estimate. We reiterate our narrow moat rating but believe the shares are currently modestly overvalued.Bunzl’s acquisition model revolves around identifying and acquiring small bolt-on distributors that strengthen its position in new markets or key product lines. The purchase of CM Supply, announced Dec. 13, is a prime example of this strategy in action. The business supplies own-brand and customised products to customers in the catering industry, including hotels and restaurants in Denmark. This acquisition ticks two boxes: It strengthens Bunzl’s market position in Denmark, a market that currently generates only around 2% of group revenue, while also helping to build the company’s sales of higher-margin own-brand products.
In the longer term, we believe more businesses will shift toward using nonfood consumable providers such as Bunzl. For smaller businesses, the time and cost savings of using a single provider can be material, while for larger businesses, such as supermarkets, the reduction in labour costs, storage space, and cash flow tied up in stock reinforces the choice to go with Bunzl, which can provide operating supplies more efficiently.
Bunzl is engaged in the distribution and outsourcing service, supplying a range of internationally sourced non-food products to a variety of market sectors. Co.'s market sectors: Foodservice, which comprised of non-food consumables, including food packaging, disposable tableware and guest amenities, cleaning products and safety items; Grocery, which goods not for resale including food packaging and hygiene supplies, to grocery stores; Cleaning and hygiene, which including chemicals and hygiene paper; safety, which include a range of personal protection equipment, including hard hats, gloves, boots, ear and eye protection and other workwear, to industrial and construction markets.
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