Bunzl (LSE:BNZL) is a FTSE 100 stock I’ve had an eye on for some time. And there are two reasons I’m especially interested in buying it in September.
First, I think it has the capacity for significant growth for a long time. Second, I believe it’s finally trading at a decent price.
Bunzl is a conglomerate – a collection of smaller businesses. These focus mostly on consumables, including food packaging, personal protective equipment, and plastic bags.
One of the attractions of this type of business is that it has some protection from cyclical downturns. It sells products customers need for their everyday operations, making demand relatively stable.
Bunzl’s large size gives it a competitive advantage. It can source and deliver products quicker than smaller competitors, which is something that is valuable for its customers.
Over the last 10 years, Bunzl has grown its revenues at around 7% per year. And improved operating margins have translated this into 8% annual growth in terms of earnings per share.
The company’s growth has been impressive. And the company’s most recent earnings report provides a couple of signs that there is likely more to come from the business.
A lot of Bunzl’s growth has come from acquiring other businesses. This brings with it the risk of overpaying for an acquisition, which can destroy shareholder value.
According to the company’s CEO, though, there is a strong pipeline of future deals in place. And an improving balance sheet puts the firm in a good financial position to take advantage.
On top of this, Bunzl’s margins are improving as a result of customers switching to its own-branded products. With this currently accounting for only 25% of sales, there may well be more to come here.
At the moment, Bunzl shares trade at a price-to-earnings (P/E) ratio of just below 20. That’s above average for a FTSE 100 stock, but there are a few reasons why I don’t see this as an issue.
First, the price is likely to look less steep as the business grows. Management just increased profit guidance for the rest of 2023 and analysts are expecting more to come in future.
Second, a high share price helps Bunzl in its bid to make acquisitions. It gives the company a chance to raise cash by selling its own shares at a good price.
Third, the company’s trading update last week reported a 10% increase in statutory profit. But the stock is only up 5% since then, making it better value today than it was a week ago.
A stock to buy
Bunzl might not be the best-known FTSE 100 stock, but investors that know it recognise it as a strong business. That’s why chances to buy it at a good price don’t come around often.
I think there’s an opportunity right now, though. So if I had a spare £1,000 right now, I’d buy 35 Bunzl shares and get ready to watch my investment grow.