US Edition Bunzl
760p +4p
Questor says Buy
Distribution group Bunzl has been a long-time favourite of this column and the blue-chip company delivered again on Monday with annual profits ahead of expectations and an increase in the full-year dividend for the 18th year running.
Shares in Bunzl have wobbled in the past month, slipping from more than 780p to 740p last week, but Questor believes this provides another opportunity to invest.
Bunzl sources and supplies all the items that a business consumes – and it does so cheaper than its customers could themselves. It delivers carrier bags, paper cups, healthcare products and takeaway boxes, for example. Its customers include Costa Coffee, Asda and the NHS.
Under chief executive Michael Roney Bunzl has been highly acquisitive – spending £126m on nine businesses last year and aiming to beat that in 2011. Mr Roney said yesterday that the company was targeting deals in continental Europe and typically Bunzl targets family-run businesses where management has a foothold in a new market.
This ability to seek growth through acquisitions and Bunzl's successful track record in integrating new businesses are key attractions.
Another is the resilience of Bunzl. In the 2010 results, this was demonstrated by the performance of the company in the UK and Ireland, which accounts for about 20pc of the business. While revenue fell by 6pc because of the uncertain economy and public spending cuts squeezing the vending and healthcare businesses, Bunzl's operating profit rose 3pc to £59.5m as a reduction in costs boosted margins. Furthermore, Mr Roney expects an "improved" performance this year.
Bunzl shares were first recommended at 571p on December 21, 2008, and are now 33pc higher, despite a mid-February dip. The FTSE 100 rose by 19pc over the same period.
For this year, the shares are trading at 12 times estimated earnings and a dividend yield of 3.2pc. For 2012 forecasts, Bunzl is trading at 11.2 times earnings and a 3.4pc yield.
Bunzl, according to Mr Roney, is a "GDP plus" business and well placed to benefit from recovery economies in North America, Europe and Australasia. Buy.