30th Aug 2022 14:42
(Alliance News) - Bunzl PLC has a reputation for consistency in its financial results, and the steady progress in its share price over the past five years - up 28% - bears this out.
The stock bounced back quickly from the pandemic sell-off of early 2020, once it became clear that the London-based distribution firm could make money from distributing Covid-19 related products, such as gloves, masks and sanitisers.
Now, Bunzl appears to be right-footing the latest business nemesis, inflation, saying that rising prices are helping to improve its profit margin.
Pretax profit in the six months to June 30 grew 7.6% to GBP296.6 million from GBP275.7 million.
"The strength of our first half results is testament to...the resilience of our value-added business model. Over the period, our teams have been agile in navigating substantial inflation and supply chain disruption," explained Chief Executive Officer Frank van Zanten.
Revenue for the first half of 2022 rose 16% to GBP5.65 billion from GBP4.87 billion a year before. Revenue was driven by product cost inflation and continued volume recovery in the base business, as well as contributions from acquisitions.
"The base business saw very strong revenue growth across North America, continental Europe and UK & Ireland, driven by strong product cost inflation. This was complemented by volume recovery in Continental Europe and UK & Ireland, due to the reduced level of Covid-19 related restrictions compared to the prior year," Bunzl said.
Inflation was "somewhat supportive" to margins, it said, though the reduction of Covid-19 sales meant they still narrowed to 7.3% from 7.5%. Still, Bunzl now expects its full-year operating margin to be higher than historical levels and only slightly below 2021.
"At constant exchange rates, the group continues to expect very good revenue growth in 2022, driven by good organic revenue growth and the positive contribution of acquisitions announced in the last 12 months. Growth of the base business is expected to be only partially offset by the further normalisation of sales of Covid-19 related products, albeit these are expected to remain ahead of 2019 levels," the company added.
CEO van Zanten said Bunzl remains focused on continuing its long-term compounding growth strategy, and cited its diverse portfolio as resilient regarding the economic outlook.
Bunzl declared an interim dividend of 17.3p, up 6.8% on the 16.2p paid out a year before.
Bunzl shares were down 5.6% to 2,942.00 pence each in London on Tuesday morning, though they remain up 12% over the past 12 months.
Victoria Scholar, head of investment of Interactive Investor, said Bunzl disappointed investors with its margin guidance.
"Although it raised its operating margin outlook, it is still expected to fall in the full year versus 2021," she explained, adding: "The supplies distributor enjoyed a boost in demand for its products during the pandemic but has since struggled during the post-Covid economic normalisation."
Shore Capital was more positive, retaining its 'buy' rating. "An excellent set of results...on first look through," declared analyst Robin Speakman.
Shore noted that 2021 margins benefited from one-off pandemic conditions.
"With its strong management culture, resilient business model to economic cycles (as demonstrated in the past), positive cash generation credentials and ability to source, transact and integrate acquisitions into the group, prospects to us continue to look assured," Speakman said.
By Tom Waite; [email protected]; and Tom Budszus; [email protected]
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