Have £5,000 to invest? I’d buy this FTSE 100 growth stock

Now could be the right time to buy this FTSE 100 (INDEXFTSE: UKX) dividend growth play, says Roland Head.

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It’s said elephants can’t gallop. But shares in the FTSE 100 stock I’m going to look at today have doubled since January 2013. Its profits have trodden a similar path.

The company is Bunzl (LSE: BNZL), which supplies consumable items such as food packaging, cleaning materials and personal protection equipment to thousands of customers all over the world.

I view this firm as boring-but-brilliant. No one gets excited when you tell them about it. But, in my view, the firm’s financial performance over the last decade or so has been deeply impressive.

Why buy today?

This defensive business has often looked expensive to me in recent years. But the BNZL share price has fallen by 16% since the middle of April, when the firm warned sales growth in North America slowed to 1% during the first quarter of 2019.

Analysts’ trimmed their profit forecasts in response to this cautious message. Bunzl’s adjusted earnings are now expected to be broadly unchanged in 2019, compared to last year. However, this group remains highly profitable, with a return on capital employed of 14% last year.

Growth opportunities remain too. The group has a proven model for expansion by buying small ‘mom and pop’ companies operating in its markets. Integrating these small businesses into the Bunzl machine usually generates cost savings and new sales opportunities.

I feel confident this business will continue to perform well, even if growth does slow. The stock now trades on 16 times 2019 forecast earnings, with a 2.5% dividend yield. That’s the cheapest I’ve seen Bunzl for a while. For buy-and-hold investors, I feel this could be a good chance to add some shares.

The next Bunzl?

With a market-cap of £7.2bn, Bunzl is now quite large. I suspect future growth will be slower than in recent years.

To maximise your returns, you might prefer to invest in a smaller business with similar characteristics, but more room for growth. If so, one company I’d consider is Porvair (LSE: PRV).

This £267m firm makes specialist filtration products for the aerospace, energy and industrial markets. Many of the company’s products are consumable and have few substitutes, providing reliable streams of repeat income.

Publishing its accounts for the six months to 31 May today, they suggest the strong performance we’ve seen in recent years is continuing in 2019.

Revenue rose by 21% to £72m during the half year. Pre-tax profit was 41% higher, at £7.4m, while the interim dividend was lifted 6% to 1.7p per share. Porvair’s operating profit margin remained stable at just over 10% — a good figure, if not outstanding.

The right time to buy?

I’ve got mixed feelings about whether I’d buy Porvair shares at 582p, the price at the time of writing. Although I believe this is an excellent business with good long-term prospects, analysts’ forecasts suggest earnings are only expected to rise by 7.4% in 2019, and by 5.6% in 2020.

That’s not a problem in itself, but it does make me question whether the stock’s valuation at 23 times 2019 forecast earnings may be high enough, for now. As a value investor, I’d rather buy this stock during a market downturn, when I might be able to lock in a more attractive valuation.

However, if I was an existing shareholder, I would certainly sit tight after today’s strong results.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK owns shares of Porvair. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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