Should I Buy Bunzl plc?

Harvey Jones says Bunzl plc (LON: BNZL) is an unsung hero of the FTSE 100 but today’s share price is nothing to sing about.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

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.

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

 

More on Investing Articles

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »