"LONDON (Alliance News) - S&P Global Ratings issued a BBB+ credit rating for distribution and outsourcing company Bunzl PLC on Thursday amid its issuance of debt to fund a major acquisition.
The new rating - which has a Stable outlook - was issued by S&P on the same day as Bunzl received French regulatory clearance for its acquisition of three French companies forming the Hedis Group: cleaning and hygiene product retailer Hedis and light catering equipment and tableware distributors Comptoir de Bretagne and Generale Collectivites.
Bunzl also announced it was to acquire Melbourne, Australia-based laboratory and healthcare consumables distributor Interpath and Santa Catarina, Brazil-based foodservice distributor Talge. Financial details for these deals were not disclosed.
S&P said the BBB+ rating "reflects our assessment of the group's strong business risk profile, underpinned by its leading market positions, and sound and stable profitability".
This was offset, however, by its customers' ability to switch providers or bring services in house. The credit agency also highlighted that 92% of its 2016 revenues came from "low-growth markets" of North America and Europe.
S&P also noted the fragmented nature of the markets it serves. Bunzl operates in 30 countries across six main segments: foodservice, grocery, cleaning and hygiene, safety, retail, and healthcare.
S&P highlighted that acquisitions formed a "key" part of the growth strategy at Bunzl. Including the most recent acquisition, the agency said Bunzl had invested GBP570 million in acquisitions during 2017. This was a new high, easily surpassing the previous high of GBP327 million in 2015.
"Bunzl has acquired more than 130 companies over the last 12 years, spending about GBP2.5 billion in the process and expanding its geographical reach from 12 countries in 2004 to around 30 today", S&P explained.
"We view positively Bunzl's track record of acquiring small and mid-sized competitors and successfully integrating them into the wider group. The firm typically retains the management of the acquired companies, which we believe has been supportive of its ability to grow its customer base, and subsequently achieve high customer retention rates and contract renewals."
S&P expects future acquisitions to be funded using internal sources of cash.
S&P also highlighted the resilient earnings before interest, tax, depreciation and amortisation margins of between 8.1% and 8.7% over the last five years. Margins around this range are expected to continue according to S&P forecasts.
"We believe that Bunzl's somewhat resilient margins," S&P explained, "despite the competitive nature of the market, lies within the contractual arrangements with clients and its relatively flexible cost structure. Bunzl typically prices its services on a short-term cost-plus-margin basis, which allows it to pass higher sourcing costs onto customers."
S&P also highlighted that around 75% of its six main segments Bunzl serves were "non-cyclical" industries.
The Stable outlook reflected S&P's view that the FTSE 100-listed company's operating performance should be "stable" driven by "positive" growth prospects in its core North American market. Further positive effects will be derived from the Hedis acquisition as well as additional bolt-on deals.
S&P did not think an upgrade "likely". This was due to its belief leverage that Bunzl would not "decrease materially" due to its focus on further acquisitions and dividend growth.
Should its adjusted debt to earnings before interest, tax, depreciation and amortisation drop below 2.0 times, however, from the 2.8 times S&P expects post-Hedis acquisition this may drive an upgrade. At present, the credit agency only expect this to improve to 2.5 times by 2019."
Only just started looking at this co but it looks like a classic pump and dump to me - Low margins , huge growth in intangibles and borrowings and trade debtors ballooning - revenue recognition manipulation -to pump up the share price. They are not getting the returns on the acquisitions they are making. There will be a big crash I predict and a borrowing crisis! They are approaching burn out in the balance sheet I think.
Further to that, I suppose that the idea is that if you want exposure to the Distribution sector, then try Rexel, but that's almost like saying switch from Tesco to Next cos they're both in the Retail sector.
Well here's my take on it: if the Amazonians really look like causing Bunzl pain, the thing to do for Bunzl would be to merge with another distirbutor where real synergies could be made.
It's long past the time that Amazon should stop hiding behind various dodgy tax havens, and cough up. In the meantime, they might like to pay their fine.
"Bunzl dropped 4.3 percent, the worst-performing large-cap stock, after a note from Morgan Stanley said the retail distributor's shares were not yet reflecting potential disruption from Amazon Business, the online giant's business-to-business distribution venture.
"Amazon's intention to target B2B distribution has resulted in a significant derating for Rexel, whilst Bunzl has been unaffected. However, the Bunzl offer appears more vulnerable to us," MS analysts said, recommending investors switch into the French distributor's shares."
Nice to see organic growth improving; it's taken a long time. I do wonder why the "Rest of the World" is so fragmented (if that's the right word), with revenue of £350m (was it) spread across some 7 countries. How do they expect to achieve benefits of scale with such a small presence in each country?
Admittedly, when one country suffers, it will only have a small effect, but in my humble, and with sodall knowledge, I'd have thought that strengthening the presence in fewer countries would have been a better approach. Just a thought.
Debt remains reasonable, and the Pension Deficit is very low.; so all in all a worthy hold for me.
"Acquisitive blue-chip LSE:BNZL: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 Â£30 million on three acquisitions - one in Spain and ..."
That's more like it in every respect. Operating margins up and debt under control. Looks as if just maybe the acquisitions are providing the organic growth we seek. Bought back the shares I flogged at 2340 - if anybody else is on this board.
"Ask 10 investors which share in the FTSE 100Â (INDEXFTSE: UKX)Â is the most reliable and you might get 10 different responses. Some might chooseÂ a utility company for its steady earnings stream. Others might opt for a big pharmaceutical,Â since ..."
Still growing, but when are they going to start growing organically? They're improving margins, but revenue growth is only coming from acquisitions. Yes, it's bringing in improving divis, but they're all over the place. They should be using their networks to grow, in addition to acquiring. Says I....
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