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The Bunzl (LSE: BNZL) share worth has had a powerful run, up 30% up to now 5 years. The corporate’s distribution and outsourcing enterprise appears to have gone from power to power because the oubreak of Covid.
However the shares fell after 2023 full-year outcomes on 26 February. And we noticed a 5% dip in early buying and selling, regardless of an increase in income.
Dividend progress
Income did slip by 2% within the yr, to £11.8bn. However adjusted revenue earlier than tax rose 4.4%, with adjusted earnings per share (EPS) up 3.7%. On statutory measures, the will increase have been even greater.
Bunzl noticed its working margin rise from 7.4% to eight%, to set a brand new document. The board has additionally bumped the full-year dividend by 8.9%, to 68.3p per share. That’s solely a 2% dividend yield on the earlier shut.
Nevertheless it does mark 31 consecutive years of dividend progress, which is a cracking observe document. Progressive rises over the long run may be value much more than a giant yield that may’t be sustained.
Acquisitions
One factor stood out to me was its assertion: “Web debt to EBITDA of 1.1 instances offers substantial headroom for acquisitions and different capital allocation choices“.
It got here on the identical day that Bunzl additionally announce two new acquisitions. The corporate has purchased an 80% stake in Nisbets within the UK, and has additionally snapped up Pamark in Finland.
This will make good sense in instances when inventory costs are low, and corporations may be purchased for lower than in higher instances.
A web debt to EBITDA ratio of 1.1 instances does sound comfortably low. I simply hope the corporate doesn’t push that “substantial” headroom for acquisitions too far.
Valuation
I charge Bunzl as a type of uncommon examples of firms who do one thing easy and do it effectively.
My predominant concern although, is the inventory’s valuation. On an adjusted EPS foundation, these outcomes put it on a price-to-earnings (P/E) ratio of 17.3. With earnings forecast to rise solely slowly within the subsequent few years, I can’t assist seeing that as totally valued.
The truth that the Bunzl share worth fell on the morning of those outcomes makes me suspect the market thinks the identical.
The world’s provide chains, gas costs, and transport routes are all underneath fairly a little bit of strain proper now too. And there have to be a danger of that every one forcing prices up for corporations like Bunzl.
Ought to the corporate must pause its dividend rises, I believe we may see the shares fall.
Verdict
Nonetheless, regardless of these fears, I reckon Bunzl has defensive traits in such an important enterprise. The agency operates enterprise to enterprise, and doesn’t promote to finish shoppers. And I believe that offers it an additional little bit of security too.
After I take a look at shares like Unilever, I see comparable valuations. Maybe these actually are the “great firms at truthful costs” that billionaire investor Warren Buffett likes a lot.
On steadiness, I’d positively take into account shopping for Bunzl for long-term passive revenue.
