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Should I Buy Bunzl plc?

I’m out shopping for shares again. Should I add Bunzl (LSE: BNZL) to my wish list?

I’ve gone a bundle on Bunzl

Last time I looked at Bunzl, back in February, I took quite a fancy to it. It is an unsung hero of the FTSE 100, rolling up its sleeves and getting down to the unglamorous task of selling food packaging, catering equipment, cleaning supplies and safety equipment to businesses around the world. I declared it a decent long-term buy and hold. So how has it done since?

This stock has risen 35% over the past 12 months, more than double the 15% growth seen on the FTSE 100 in that period. But the share has plateaued lately, up just 7% in the last six months. The market was underwhelmed by October’s brief interim management statement showing a 2% rise in like-for-like revenues, even though revenues rose 12% thanks to Bunzl’s busy acquisition strategy. It also announced a new acquisition, catering equipment distributor Pro Epta, based in Mexico.

Everything flows

Maybe markets were simply bored by the statement, which declared “no significant change” in Bunzl’s financial position during the period. Even phrases such as “substantial funding headroom available… strong cash flow and balance sheet… promising acquisition pipeline… and further growth” couldn’t wake investors out of their lethargy. 

Well, I like Bunzl. It is a globally diversified business that has wrapped itself in another layer of diversification, by expanding across a range of services, including groceries, safety, non-food retail, cleaning, hygiene and redistribution. Given all the companies in all the world, and the continuing popularity of outsourcing, it has a massive market to aim at. And it continues to grow through acquisition, picking up Canadian business Wesclean Equipment & Cleaning Supplies earlier this week, which should add another £40 million or so of annual revenues.

Bam-Bunzled

But I’m bamboozled by Bunzl’s numbers. This stock isn’t cheap, trading at 19.2 times earnings, up from 17 times in February. Worse, the yield is just 2.1%, well below the FTSE 100 average of 3.5%. For this, you get decent forecast earnings per share growth of 6% in 2014, but that only lifts the yield to 2.4%. No wonder brokers are lukewarm on this stock, with Credit Suisse recently reiterating its ‘underperform’ rating, setting a target price of £10, well below today’s £13.74. Others are more optimistic: Deutsche Bank has a target price of £14.26. Bunzl looks tasty but, at today’s prices, it can stay in the oven.

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> Harvey doesn't own any stock mentioned in this article