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Bunzl - top and bottom-line growth, outlook unchanged

Bunzl reported revenue growth, ignoring the effect of exchange rates, of 9.8% to £12.0bn.

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Bunzl reported revenue growth, ignoring the effect of exchange rates, of 9.8% to £12.0bn. That was driven by higher prices, volume recovery in the first half and a 3.1% contribution from acquisitions. In 2022, there were 12 acquisitions with total committed spend of £322 million.

Underlying operating profit rose 11.1% to £885.9m, outpacing revenue growth as margins rose from 7.3% to 7.4%. Over the year, price increases more than offset cost inflation.

Free cash flow of £705.7m was £180.3m higher than the prior year. Net debt, including lease liabilities, was £1.7bn, down from £1.8bn.

The 2023 outlook remains unchanged, with the group expecting slightly higher revenue than 2022 and robust margins.

The board has recommended a final dividend of 45.4p, up 11.3%.

The shares rose 2.2% in early trading.

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Our view

Bunzl marks its 30th consecutive year of dividend growth, an impressive feat by anybody's standards and underpinned by a well-oiled, cash generative, machine. 2022 was another strong year for growth on both the top and bottom-line, price hikes and acquisitions did their jobs to keep inflation at bay and margins were even able to creep up.

Bunzl's essentially a mashup of around 150 distribution businesses, which source and deliver a range of essential products. There's nothing fancy about the products on offer, think food packaging and safety equipment. But that's what we like about the product range, these are things customers can't go without.

Growth won't shoot the lights out, but it's been consistent for a long time. Both revenue and underlying operating profit have grown at an annualised rate of 9-10% going back to 2004. Growth in 2023 will be harder to come by as we lap strong 2022 numbers, but robust performance during tough times has been particularly impressive. Something that benefits both investors and helps in attracting customers.

Recent organic growth has been largely driven by higher prices, which have been essential as a tool to keep inflated costs from eating into margins. We're expecting cost pressures to continue into 2023, and further price rises will likely follow. Whether margins can hold on remains to be seen. But a benefit of selling essential products and being deeply integrated into customers supply chains is a degree of stickiness that aids in pricing power.

Aside from organic growth, it's acquisitions that take centre stage. Two thirds of the revenue growth over the last 10 years has been a result of adding new businesses to the portfolio, with the group bringing on 12 over 2022 for a total cost of £322m - that makes a total of 195 acquisitions since 2004.

Acquisition-led strategies have their drawbacks. If the pool of target companies dries up or a business needs to raise external cash to fund acquisitions, then it's not usually sustainable. Bunzl's got the latter covered though. Cash conversion (how much operating profit feeds through to cash flow) is a key strength, coming in at over 100% in each of the last 4 years and the balance sheets in a strong position too.

Overall, we think Bunzl has a lot to offer and can understand why the valuation sits ahead of the wider industry. That adds pressure to deliver, but sometimes great businesses deserve a premium valuation. Of course, there are no guarantees.

Bunzl key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Matt Britzman
Equity Analyst

Matt is an Equity Analyst on the share research team, providing up-to-date research and analysis on individual companies and wider sectors.

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Article history
Published: 27th February 2023