- Significant operating margin expansion
- Full year outlook raised again
- Material firepower for acquisitions
Bunzl (BNZL) shares bounced 9.3% to an all-time high of £35.12 after the resilient distribution and services giant delivered another full year profit guidance upgrade driven by acquisitions and an improved first half margin performance.
Drawing confidence from the strength of its balance sheet, the FTSE 100 firm also announced a £250 million share buyback programme to be completed by next March.
This will be followed up by a further £200 million programme for full year 2025 to be confirmed with the annual results in February.
MARGINS MOVING HIGHER
The global distribution and outsourcing giant now expects year-to-December 2024 adjusted operating profit to show ‘a strong increase in comparison with 2023’ following a significant improvement in margins for the half ended 30 June.
While reported revenues were down 3.3% at £5.71 billion, Bunzl said underlying sales trends improved in the second quarter ‘with further improvement in July and August’.
Operating profit rose 7.4% at constant currency to £455.5 million, ahead of the £433 million Shore Capital was looking for.
And cash generative Bunzl, which has more than 30 years of unbroken dividend growth under its belt, treated shareholders to a 10.4% hike in the half-time payout to 20.1p per share.
BORING CAN BE BEAUTIFUL
For the uninitiated, Bunzl supplies the rather mundane items other firms need in order to do business, but not items they would sell to their customers.
For example, it supplies disposable coffee cups to cafes, food wrap to supermarkets, hard hats to builders as well as rubber gloves to hospitals.
Some may regard Bunzl’s business as boring, yet the essential nature of its products shelters the firm from the vagaries of the economic cycle and gives Bunzl pricing power, a key ingredient during inflationary times.
The London-headquartered company is steadily growing its operations both organically as it takes on more customers and inorganically as it buys bolt-on businesses.
Seven acquisitions have been announced in the year to date, the latest being PowerVac, a distributor of commercial and industrial cleaning equipment in Western Australia with annual revenues of roughly £5 million.
WHAT DID THE CEO SAY?
Commenting on the results and buyback news, CEO Frank van Zanten said: ‘We have significantly increased the group’s operating margin in recent years to 8%, driven by good margin management, including increased own brand penetration, and the impact of recently acquired businesses.’
He added: ‘In 2024 our committed acquisition spend is already at a record high of over £650 million. Consistent strong performance means Bunzl has generated around £2.9 billion of free cash flow between 2019 and 2023, significantly strengthening our balance sheet.’
AJ Bell investment director Russ Mould commented: ‘Renowned as being one of the more mundane businesses on the UK market, Bunzl’s results have excited investors and reminded them that boring can be best sometimes. The company has announced a bumper buyback and unveiled a double-digit increase in its dividend.
‘This might seem somewhat at odds with its first half results which saw revenue decline modestly, however this headline obscures a recent pick-up in performance not just in the latter part of the first six months of the year but also in the weeks since. The operating margin is also up and cash generation is reliably strong.’
Mould continued: ‘Acquisitions have always been a significant component of Bunzl’s growth strategy and the company’s latest deal takes its 2024 spending to £650 million.
‘Individually, these are not huge transactions but easier to swallow purchases which the company has demonstrated over time it can bring into the Bunzl fold without major disruption to the wider group.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Martin Gamble) own shares in AJ Bell.
