Morningstar | BNZL Updated Forecasts and Estimates from 12 Nov 2018
Narrow-moat Bunzl delivered a solid third-quarter update with organic revenue growth of 4% and a 3% benefit from acquisition growth, in line with the pattern we have seen for the year to date. As these numbers are in line with our expectations for the full year, we do not expect to make any material changes to our forecasts or to our GBX 2,160 fair value estimate. At the prevailing prices, we believe the shares are fairly valued.The company also announced the acquisition of Volk do Brazil, a regional distributor of personal protection equipment. Acquisitions such as this are integral to Bunzl’s growth strategy, in which it identifies and acquires small bolt-on distributors that strengthen its position in new markets or key product lines. Personal protection equipment in particular is a good example of an own-brand range of products that offer higher margins than third-party products. As the company looks to increase the share of own-brand products in its sales mix, over time we should see this reflected in increased operating margins.
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 simply 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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