Bunzl back in favour as empire keeps expanding

Acquisitive blue-chip Bunzl continues to impress the City, as it embarks on yet another year of empire-building. As well as a decent first-half, the international outsourcer has spent £30 million on three acquisitions - one in Spain and two in Canada. That's eight this year.

A record spend of £327 million a couple of years ago almost halved in 2016 to £184 million, but it's back on the trail again this time, with £290 million shelled out in the first half alone.

And it's far from finished, with boss Frank van Zanten anticipating further deal-making.

The boss says revenue likely increased by an expectation-busting 7% at constant exchange rates in the six months to 30 June. That's thanks to improved organic growth of 3-4% and a similar impact from acquisitions.

The numbers themselves were solid, but UBS analyst Rory McKenzie isn't as excited as some of his peers.

He cautions that underlying operating profit margins are down slightly year-on-year due to the dilutive impact of acquisitions and new business wins, so expect upgrades to full-year consensus forecasts of less than 1%.

In fact, Citi's Marc Van'T Sant has increased his 2017 pre-tax profit forecast by just over 1% to £534 million and by 0.5% for 2018 to £569 million. He likes Bunzl as a "business services core holding".

Latest acquisition, Tecnopacking, is a Valencia-based distributor of industrial and disposable packaging products. It generated revenue of €38 million (£33.4 million) in 2016, while Western Canadian AMFAS and Western Safety aggregated annualised revenues of C$16 million (£9.5 million).

Currently, Bunzl trades on a 2017 forecast price/earnings (PE) ratio of around 20 times, which looks steep. But Barclays analyst Paul Checketts believes the rating is justified by reliable high single-digit constant currency earnings growth.

Earlier this month he ticked up his target price to £26, but has a more bullish two-year view, reckoning £30 is achievable versus £23.50 currently.

While it may be perceived as a dull industry, Bunzl's ride over the past year or so has been far from. Relatively unscathed after the EU referendum, it subsequently climbed to a record high £25.35 late August after a good half-year report and a pair of acquisitions.

And analysts are still fond of what HSBC describes as a "partially index-linked bond proxy" that yields a forecast 2% in 2017, rising to 2.2% in 2019.

It's grown that payout consistently since 1991, and the company tends to flourish in a low interest rate and inflationary environment. HSBC's target price of 2,508p implies modest upside of 7%.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.