EUR 850.00 For Business Accounts Only

Morningstar | Narrow-Moat Bunzl Plates Up a Reasonable 2018

Narrow-moat Bunzl’s full-year results were a mixed bag. Top-line organic growth came in at 4.3%--the same result as in 2017, the highest levels recorded in a decade--while operating margins declined 10 basis points to 6.8%, principally due to the addition of some lower-margin grocery business in the United States. While these results were broadly in line with our expectations, they were slightly behind consensus on the bottom line. We do not expect to make any material changes to our forecasts, and we reiterate our GBX 2,160 fair value estimate. Given the strong run in the share price over the last few months, we believe the shares are currently overvalued.

Bunzl’s acquisitions strategy, which has added an average of 5% annually to top-line growth over the last decade, continued apace in 2018. And the company on Feb. 25 announced the acquisition of another personal protection equipment business in the U.S., Liberty Glove & Safety. This is a prime example of the company’s desire to expand its presence in this market, through which it can push its own range of personal protection products through new distribution channels. This area, due to its high proportion of own-brand products, can generate operating margins ahead of those in traditional nonfood consumables.

Longer term, we believe more businesses will shift toward using nonfood consumables providers such as Bunzl. For smaller businesses, the time and cost savings of using a single provider can be material. For larger businesses such as supermarkets, the reduction in labour costs, storage space, and cash flow tied up in stock is overshadowed by the fact that Bunzl can simply provide operating supplies more efficiently.