Bunzl plc (BNZL) Ordinary 32 1/7p

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Bunzl’s third-quarter revenue grew by 5.4% when ignoring exchange rate movements. A 6.8% contribution from acquisitions more than offset the 1.2% underlying revenue decline, an improvement from the 4.9% fall seen in the first half. This was helped by an improved performance in the US foodservice redistribution business.

Bunzl continues to expect a small reduction in underlying revenue over the full year, but also a “strong increase” in underlying operating profit.

Since the half-year results Bunzl has completed four bolt-on acquisitions and repurchased £100mn worth of shares under its £250mn buyback programme.

The shares fell 1.6% in early trading.

Our view

Bunzl’s recent performance isn’t shooting the lights out. But smart acquisitions and work on improving margins has paved the way for a decent full year outlook.

Bunzl's a mashup of around 150 distribution businesses, which source and deliver a range of essential products. There's nothing fancy about the products on offer, think food packaging and safety equipment. But that's what we like about the product range, these are things customers can't go without. Overall, we retain the view that Bunzl's an attractive business, but there are some things to monitor.

Recent organic performance has been a struggle. Falling inflation is pulling sales down and normalising sales from Covid related products across geographies are a drag. The latter should normalise as we move through 2024 and comparable periods ease, but it’s pricing where we see headwinds persisting.

Aside from organic growth, it's acquisitions that take centre stage. Over the past 20 years, they’ve accounted for around two-thirds of the impressive 9% compounded annualised growth rate in revenue. It’s a highly fragmented market so there’s plenty of opportunity to snap up businesses with attractive margins at decent prices.

Having committed to over £650mn to acquisitions back at the half year mark, and with several more since then, Bunzl has already exceeded the previous high from back in 2017. There’s been further evidence that the pipeline is strong with management committing to spend at least £700mn on acquisitions in each of the next 3 years where opportunities are available.

That’s positive news, but acquisition-led strategies have drawbacks. If the pool of target companies dries up or a business needs to raise external cash to fund acquisitions, then it's not usually sustainable. Bunzl's got this covered with a highly cash-generative business model and a strong balance sheet with plenty of room to tap debt markets if needed.

We've been genuinely impressed by Bunzl's margin performance and remain supportive of the resilient portfolio and highly cash-generative model. We're mindful that organic weakness puts a lot of pressure on acquisitions to do the hard work and expect top-line growth to be a near term challenge.

Environmental, social and governance risk

General Industrial companies are medium risk in terms of ESG but can trend up to the higher end of the spectrum depending on subindustry. The primary risks can include labour relations, emissions (either product or production-based), business ethics and product governance. Other concerns are waste and health & safety.

According to Sustainalytics, Bunzl’s overall management of material ESG issues is strong.

While its overall reporting could be further improved, Bunzl has implemented initiatives such as linking executive pay to ESG goals, establishing a board committee for ESG oversight, adopting a strong environmental policy, and providing robust whistleblowing channels.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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