Distributing disposable cups, latex gloves and cleaning products around the world might not be the most glamorous line of work out there, but it hasn’t done long-term holders of FTSE 100 stock Bunzl (LSE: BNZL) much harm.
A steady long-term performer, the shares were up around 400% over the last 10 years before markets opened this morning, highlighting how profitable adopting a ‘buy and hold strategy’ can sometimes be. By way of comparison, the index of which it is a constituent is up 90% over the same time period and that’s from the depths of the financial crisis.
That’s not to say there hasn’t been the occasional wobble. Like all stocks, Bunzl can disappoint investors whose expectations become too great.
Today, the shares have fallen heavily following the release of its latest trading statement and news that the rate of underlying revenue growth has slowed.
Personally, I think this could be a rare opportunity for new investors to grab shares in a quality company that usually trades on a fairly high valuation.
Before explaining why, let’s take a closer look at those numbers.
North American pains
Group revenue over the first quarter of 2019 rose 4% or 2.5% once foreign exchange fluctuations were taken into account.
While the dip in revenue growth was attributed to “mixed macroeconomic and market conditions” in Bunzl’s markets, its operations in North America were singled out as being particularly problematic as a result of “slightly lower sales to customers in the grocery and retail sectors“.
More positively, Bunzl reported “good growth” in the safety, processor, agriculture and convenience store sectors and underlying revenue growth of roughly 2% in Europe, the UK & Ireland and the rest of the world.
It also revealed that it had acquired Dutch specialist packaging distributor Coolpack (which achieved revenue of €4m last year) for an undisclosed sum and that its pipeline of potential acquisitions was “promising” with more purchases expected in 2019.
Not quite the car crash that a double-digit percentage fall would imply then, at least in my opinion.
So, what else might be going on?
I suspect a lot of today’s fall can be attributed to profit-taking. Bunzl’s shares have been trading at all-time highs recently, which would explain why many may have regarded the update as a sign to bank at least some of their gains. Anticipation of the ‘sell in May’ effect and the gradual cooling of markets over the summer may also be playing a role.
Of course, this shouldn’t really bother those investing for years rather than a few months. As far as I’m concerned, the investment case for Bunzl remains solid: a defensive business, supplying dull but essential products to 30 countries around the world that also boasts a long record of raising its annual cash returns to shareholders.
A forecast yield of 2.3% may look rather measly but the fact that it’s likely to be easily covered by profits (and continue growing) surely makes it a better pick for income investors than many high-yielding stocks in the FTSE 100.
The shares are also looking increasingly attractive valuation-wise.
Before this morning, Bunzl’s stock was trading around 19 times forecast earnings, already far lower than its five-year average P/E of 24. Thanks to today’s rather severe share price reaction, they’re now even cheaper.
For me, that’s a reason to load up rather than sell out.
