Bunzl share price analysis with post-H1 stellar results upside targets
Bunzl shares hit all-time high as H1 results support improved profit outlook
FTSE 100-listed Bunzl shares hit an all-time high on Tuesday after the supplier of food packaging, stationery, and other business essentials raised its full-year profit outlook. Bunzl said it expects adjusted operating profit for 2024 to show "strong growth" compared to 2023.
The company reported a 7.4% increase in adjusted operating profit to £455.5 million for the first half of 2024, and announced a £250 million share buyback program as part of a 3-year plan to allocate £700 million annually towards acquisitions and capital returns. Bunzl also upgraded its full-year profit outlook on the back of improved margins and acquisitions, declared a 10.4% higher interim dividend, and committed over £650 million towards acquisitions year-to-date (YTD), including the newly announced PowerVac deal.
Multiple tailwinds propel growth
The company has benefited from multiple tailwinds propelling growth. This includes higher prices and expanded market share for its portfolio of own-brand business supplies.
Bunzl's strategy of acquiring or buying stakes in complementary businesses, known as inorganic growth, has also boosted profitability.
Looking ahead, Bunzl plans to invest £700 million annually through 2027 on additional acquisitions and shareholder returns. As part of this, it announced a £250 million share buyback program on Tuesday, plus an expected further £200 million by year-end.
CEO Frank van Zanten told the Reuters news agency that the company is "quite keen" to expand further in the United States. Growth there has been hampered recently by lower volumes as destocking and inflation weigh on the food service sector. Even so, Bunzl's track record of "consistently strong cash generation" means leverage has stayed below its target range for some time, van Zanten said. He added that Bunzl is now in an "excellent position" to pursue more value-accretive acquisitions globally while also returning excess cash to shareholders.
Bunzl has operations across over 30 countries supplying a range of essentials to businesses, schools, retailers and more. From food packaging to cleaning products, safety equipment, stationery and healthcare supplies, Bunzl caters to daily business needs.
This diversified portfolio across geographies and sectors has provided resilience amid economic uncertainty. While some areas like hospitality and travel were hit by the pandemic, other sectors like healthcare and e-commerce thrived.
Meanwhile, heightened inflation and supply chain strains have been largely passed through to customers via higher prices.
Further acquisitions in the pipeline
The company's reliable cash flows support both organic investment and acquisitions for growth. Since 2004, Bunzl has acquired over 180 businesses. The fragmented nature of its markets globally creates ample consolidation opportunities.
Recent deals include the 2022 purchase of Joshen Paper & Packaging, expanding Bunzl's footprint in Canada. Joshen serves customers nationwide with paper and packaging materials as well as janitorial and sanitation supplies.
That deal followed the 2021 acquisition of Pinnacle Foodservice, an Australian market leader in grocery, frozen, and dairy distribution. Pinnacle strengthened Bunzl's network across Australia and New Zealand.
With £700 million a year allocated toward new acquisitions, Bunzl is actively pursuing targets, especially in North America. The US is Bunzl's largest market, representing over 50% of group revenue.
Bunzl’s raised profit guidance
While economic uncertainty persists looking ahead, Bunzl believes its defensive positioning will continue to deliver growth. Its vast distribution network supplying essential business consumables provides resilience across business cycles.
Reliable demand, pricing power, cash generation and acquisition opportunities give Bunzl confidence in its growth trajectory. Hence the raised profit guidance for 2024 and beyond. If execution remains consistent, Bunzl seems poised to continue rewarding long-term shareholders.
Analyst ratings for Bunzl
Pre-H1 Bunzl results LSEG data & analytics showed a consensus analyst rating of between ‘buy’ and ‘hold’ for the company with 2 strong buy, 4 buy, 7 hold, 5 sell and 1 strong sell with an upside target at 3,225.94 pence, which has now been surpassed by over 6% (as of 27 August 2024). Analysts ratings are expected to be raised post-results, though.
Technical outlook on the Bunzl share price
The Bunzl share price gapped higher following its better-than-expected results, and intraday rallied by as much as 12% to 3,600 pence, before trading around the 3,440p mark, still up around 7% and in record highs.
Bunzl daily candlestick chart
A rise above the current all-time high at 3,600p would probably engage the psychological 4,000p mark.
Further up lies the 161.8% Fibonacci extension of the March-to-October 2020 advance, projected upwards from the March 2021 low, at 4,472p.
Bunzl weekly candlestick chart
Were a retracement lower to be seen, the previous record high made at the end of July at 3,288p, should act as support.