A diversified group with an international outlook

Breakdown of sales by specialty (source: Bunzl annual report 2023)

Bunzl employs nearly 24,500 people and is present in 33 countries. Faced with a highly fragmented market, the British company acts like a large holding company, making numerous acquisitions (over 180 since 2004). Geographically, Bunzl is mainly present in North America (54% of sales) and continental Europe (23%). The UK and Ireland are well represented (11%), while the rest of the world is growing faster (12%).

Olympic form (and has been for some time)

Bunzl never ceases to impress its shareholders. Despite a first half marked by a phase of normalization in terms of revenue growth (this was expected, no nasty surprises), the London-based group has improved its profitability. Looking at the figures, we see sales of £5.71 billion, down 3.3% on a reported basis (but only -0.4% at constant exchange rates), and an adjusted operating margin up 3.9%. In our columns, we regularly remind you to be wary of adjusted terms in earnings publications. In this case, Bunzl is not hiding anything under the carpet, and operating profit is adjusted only for amortization of certain brands and acquisition-related items.

If we stretch the cursor to analyze the 2014-2023 cycle, the picture is quite satisfying. Sales have increased 1.9-fold, and operating margin has risen by around 1.3 points to 8.24% last year. The company's value creation is particularly noteworthy: free cash flow (or cash profits, the money actually available at the end of the financial year) more than tripled over the period. All this was achieved with perfectly controlled debt levels.

Optimum capital allocation, but beware of acquisitions

Bunzl makes this money available by remunerating its shareholders with a solid dividend, which translates into a yield of over 2% at the current share price. Last year, the coupon was increased for the 31st consecutive year. The company has also announced a share buyback program of up to £250 million. In addition, Bunzl has committed to using £700 million for acquisitions in each of the next three years. This greed for external growth is undoubtedly the company's main weakness, as it depends on it for its growth. So far, everything seems to have gone smoothly (more than 180 acquisitions since 2004). in the integration process, poor understanding between the target and management, etc.) and the Group's size is now pushing it to be more aggressive and to commit larger sums.

Not a crazy valuation

Bunzl is trading at valuation levels in line with recent years. The P/E hovers around 20 times for this year and next. A downturn in the share price could easily be taken advantage of, given the quality of the dossier and the outlook: for the year as a whole, operating profit should "rise sharply" at constant exchange rates, while revenue growth should pick up again in the second half of the year, with significant improvements already noted by management in July.

Bunzl makes good progress (source: MarketScreener):