Stocks in Focus: Bunzl

Thursday 20 December 2018

This week NW Brown focus on Bunzl, the global distribution and outsourcing company.

The company supplies a wide range of non-consumable not-for-resale products to help clients run their businesses, varying from cleaning supplies and safety clothing to disposable healthcare items. The company recently announced an update for their end of year, including information on transactions and expectations for performance.

Bunzl has always been active in using acquisitions to grow its revenue. Over the last 14 years the company has completed over 151 transactions spending more than 3.1bn in the process. The company confirmed its acquisition of Volk do Brasil, a safety equipment distributor, is progressing well. Management has also announced the purchase of CM Supply, a Danish foodservice distributor.

The company stated that revenue is set to increase by between eight per cent and nine per cent from last year. This growth is being delivered through their acquisitions as well as organically through winning new contracts and cross-selling products and services. From an investment perspective, the hope is that Bunzl can continue to deliver steady organic growth, supplemented by further disciplined acquisitions within what remains a fragmented industry. However, relying on acquisition for growth can be risky as acquiring companies tends to cost a premium and projected synergies are not always deliverable. Another risk is margin deterioration in the event that inflation rises and Bunzl is unable to pass higher costs onto their clients. In the meantime, the business continues to enjoy relatively predictable recurring revenues given that it controls business critical stock and deliveries for companies so that they can function day-to-day.

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