US Edition Bunzl
711p +9
Questor says BUY
Bunzl sources and supplies all the items that a business consumes – and it does so cheaper than its customers could themselves.
It provides consumables used in day-to-day business, be that coffee cups, carrier bags, labels, toilet rolls or cleaning items.
The company has grown by acquisitions – and the firm's solid cash flows mean it can do this without issuing equity.
This strategy will continue and the group is looking for acquisitions in Europe, particularly in Scandinavia, and South America to enter new markets. The group currently operates in 24 countries and has doubled its number of markets since 2003.
It made eight purchases in the first half, including two announced yesterday.
It has bought Cool-Pak, which operates in the fruit-growing areas an hour-and-a-half drive north of Los Angeles, providing packaging for the industry.
The company also bought AM Supply, a business operating in the north of Rio de Janeiro State. The company supplies consumables to the oil and gas industry, and Mike Roney, Bunzl's chief executive, says he has high hopes for the business as Petrobras develops the recent offshore oil finds off the cost of the South American country.
In the six-month period to June 30, pre-tax profits rose 6pc to £100m on revenues 2pc higher at £2.35bn. When amortisation and the cost of acquisitions in the period is stripped out, profit was £125m, compared with a consensus view of nearer £120m.
There was also good news on the dividend front, which was increased by 8pc to 7.15p.
This was ahead of expectations and it will be paid on January 4 next year. The shares trade ex-dividend for this payment on November 10.
The prospective yield is now 3.3pc and the group has increased the dividend every single year since 1992. Any further acquisitions will be funded through cash flow, as has always been the case.
The company saw a slowdown in the sale of medical equipment such as masks and hand gels, as fears over the H1N1 influenza strain subsided. Britain and Ireland were tough markets and the group said it was seeing a fall in demand for safety equipment from construction companies.
The current-year earnings multiple is 12.4, falling to 11.5 in the year to December 2011.
The shares were first recommended at 571p on December 21 2008, and they are now 25pc above their initial recommendation price compared with a market up 20pc. The shares remain a buy.