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With one other sturdy set of annual outcomes launched right now (26 February) by Bunzl (LSE: BNZL), I’ve been reconsidering the funding case for the foodservice and janitorial provides enterprise. As a long-term investor, may Bunzl shares be value including to my portfolio?
Spectacular efficiency
For me, the reply is sure – if I may purchase them on the proper value.
Bunzl has an extended historical past of rising by acquisition. In an trade with a lot of medium-sized native gamers, that could be a good method to develop, so long as the value is true. Final 12 months alone it inked 10 new offers and has dedicated £1.7bn to acquisitions over the previous 4 years. Immediately it introduced a brand new UK acquisition and its first buy in Finland.
Surprisingly, revenues truly fell barely final 12 months (regardless of the corporate calling them “resilient”) however most of that was all the way down to change fee actions. The trade has skilled heavy inflation in recent times and that slowing down helps clarify the dearth of income development.
Relating to the underside line although, the corporate’s efficiency was good. Working earnings, pre-tax earnings and primary earnings per share all grew by double-digit percentages.
Vibrant future
Bunzl has mastered a primary however efficient enterprise mannequin.
Its buyer base has excessive ongoing demand for objects like disposable cups and cleansing provides. The larger its enterprise will get, the extra economies of scale Bunzl has. By providing a one-stop store to clients, it has a aggressive benefit over rivals.
The corporate is extremely money generative on the working stage. However free money flows slipped final 12 months by 9%. Buying firms is dear so can eat into money flows. Final 12 months noticed a £667m money outflow from financing actions, together with £210m spent on dividends.
The dividend per share grew 9%. Bunzl shares have now recorded over three many years of annual development within the shareholder payout, making the corporate a Dividend Aristocrat.
The financing prices of the acquisition mannequin proceed to pose a danger to money flows. Slowing revenues are additionally a danger, though if revenues are flat however earnings develop I don’t see that as an issue.
I’m upbeat in regards to the long-term outlook for the enterprise due to its confirmed technique and huge untapped buyer market.
Valuing the shares
Final 12 months’s primary earnings per share of £1.57 imply that Bunzl shares now commerce on a price-to-earnings ratio of 20.
I feel a top quality enterprise deserves a value premium to replicate that high quality. Nonetheless, after rising 31% over the previous 5 years, I don’t now see Bunzl shares as attractively priced. The present valuation affords me little or no margin of security as an investor if the enterprise runs into sudden issues.
Though I might be comfortable to purchase Bunzl shares on the proper value, for now I can’t be investing.
