The Bunzl (LSE: BNZL) share price rose today (24 April) after the firm updated investors on its progress so far in 2024. As I write, the FTSE 100 stock is up 1.24% to 3,092p.
Here, I’ll take a gander at this first-quarter (Q1) update and consider whether I would add the stock to my portfolio.
Beautifully boring Bunzl
Bunzl is a global distribution and services firm. It distributes paper cups, napkins, clingfilm, soap, shopping bags, and many other basic products for the grocery, hospitality, retail and healthcare industries.
This often gets it labelled as boring. Indeed, if you start researching Bunzl, you’ll quickly find articles calling it this. I admit there’s a certain catchy quality to the alliteration.
But is it really that boring a business in the context of the FTSE 100? More than high-street banks or a utility? Or a real estate investment trust (REIT)? We’re not talking about the tech-heavy Nasdaq 100 here.
Anyway, to be fair, most commentators focus on how being basic can also be brilliant. After a near-doubling in the share price over 10 years, and a rising dividend, I’m sure shareholders would agree.
Q1 results
In its trading statement, the company reported that revenue declined 2.4% on a constant currency basis.
This was due to lower volumes in its US food service redistribution business, as well as American retail customers destocking and the impact of deflation. At actual exchange rates, group revenue fell by 5.9%.
The good news was that adjusted operating profit was in line with expectations and management held its guidance for the year. The market currently expects around £11.8bn in revenue, up marginally on last year, and a group operating margin slightly below 2023’s record 8%.
Investors seem to like this reiteration of full-year profit guidance. That said, the FTSE 100 is powering past another record high today as I write, so it could be a case of a rising tide lifting most boats.
Acquisition machine
Bunzl also confirmed that it had been cleared by UK regulators for its £399m purchase of an 80% stake in catering equipment firm Nisbets. The deal should close in the first half once the Irish competition authority gives the nod.
Bunzl’s growth strategy is founded upon bolt-on acquisitions. It has conducted dozens of these over the years.
In 2023, it agreed 19 acquisitions, taking its total committed acquisition spend to £1.7bn over the previous four years.
However, these have been done sensibly. It ended 2023 with a net debt to EBITDA ratio of 1.1 times, which is low. The firm said this provides it with “substantial capacity to self-fund further acquisitions”.
Meanwhile, its return on invested capital has remained strong at 15.5%.
The dividend yield may be low at 2.2%, but I admire the record here. We’re talking about three decades of rising payouts!
Would I buy the stock?
Naturally, there are risks. One is the ongoing disruption of shipping routes, which could add costs to the company’s operations. And the stock isn’t dirt cheap at 19 times earnings.
Still, Bunzl does strike me as a steady compounder that can provide stability to a portfolio, as well as the possibility of increasing dividends.
Therefore, I would consider buying this FTSE 100 stock if I were building a portfolio today.
