EUR 850.00 For Business Accounts Only

Morningstar | Narrow Moat Bunzl Stumbles in Q1

Narrow-moat Bunzl delivered a relatively downbeat 1Q trading update. Organic revenue growth was just 1.5% over the period, a sharp drop from the 4.3% delivered in full-years 2017 and 2018. While this figure is well below our expectation of 3.4% growth in full-year 2019, we are hesitant to hastily cut our numbers so early in the year. We therefore maintain our near-term forecasts and GBX 2,360 fair value estimate. Despite today’s fall, we believe the shares are currently fairly valued.

The cause of the sharp decline in growth in 1Q was North America. Generating almost 60% of group sales, North America has been the strongest region for a number of years, so the news that growth in this region has slowed to just 1% over the period is all the more surprising. Lower than expected sales in the grocery and retail segments was the driver behind the decline in growth, a trend that will undoubtedly spook the market, given the nature of these segments as economic bellwethers. For the rest of the world and Europe, organic revenue growth came in a little better at 2%, slightly just below our expectations, but not hugely concerning. While we remain vigilant when monitoring these trends, this data point represents just one quarter and believe nine months is plenty of time in which to recover.

Longer-term, we believe more businesses will shift toward using non-food consumable providers such as Bunzl. For smaller businesses, saving time and costs by 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 are overshadowed by the fact that Bunzl can simply provide operating supplies more efficiently.