26th Feb 2024 10:29
(Alliance News) - Shares in Bunzl PLC on Monday slipped as it predicted underlying revenue and margins will fall in 2024, and it failed to deliver a hoped-for share buyback.
Shares in Bunzl declined 4.8% to 3,148 pence in London on Monday. It was the worst performing stock in the FTSE 100.
The London-based distribution and services company cautioned that following a "slower than expected" start to the year in North America, it now expects to deliver slight revenue growth in 2024, at constant exchange rates, driven by acquisitions announced in 2023.
But underlying revenue, which is organic revenue adjusted for trading days, is predicted to decline slightly. Group operating margin is now expected to be slightly below 2023, Bunzl said.
Analysts at UBS said the market consensus had expected organic revenue growth of 0.4%.
UBS noted volumes have not picked up as quickly as hoped, and the deflationary environment in North America is seeing a more competitive market.
AJ Bell's Russ Mould highlighted the warning about a drop in operating margin this year.
"Investors consider Bunzl to be as boring as you can get as there is no glamour to its business, but equally that means the market doesn't expect any shocks when it reports. Therefore, warning on margins has caught people by surprise," he said.
Bunzl said revenue in 2023 edged down 2.0% year-on-year to GBP11.80 billion from GBP12.04 billion, though remained "significantly ahead" of 2019. This drop is in line with company and market expectations.
However, despite the weaker topline performance, pretax profit rose 10% to GBP698.6 million from GBP634.6 million, as operating margin increased to 8.0% from 7.4%.
Recommending a final dividend of 50.1 pence, the total dividend for 2023 increased by 8.9% to 68.3p from 2022's 62.7p.
However, there was no share buyback.
Jefferies explained that management hinted at a GBP500 million
buy back a year ago so its absence today is "surprising".
However, the broker noted this was probably due, in part, to the acquisition of a 80% stake in catering equipment and consumables distributor Nisbets for GBP339 million, also announced by Bunzl on Monday.
Jefferies pointed out the price tag was lower than the touted GBP450 million to GBP500 million given in media reports.
Bunzl also noted its first acquisition in Finland, agreeing to buy Pamark, a distributor of products in cleaning & hygiene, healthcare, foodservice and safety categories.
Jefferies said these aggregate acquisitions would be high-single-digit accretive to earnings per share.
UBS calculated the Nisbets acquisition would be 3% to 4% accretive in the first full year of ownership.
Matt Britzman, equity analyst, Hargreaves Lansdown remained positive on Bunzl.
"As a defensive growth business, there's a lot to like".
"If Bunzl can contain the ongoing pricing weakness, then the pipeline of accretive acquisitions can do its job to prop up margins over the coming year," he suggested.
By Jeremy Cutler, Alliance News reporter
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