27th Aug 2024 11:23
(Alliance News) - Bunzl PLC shares surged on Tuesday, after it upped its annual guidance, and launched a GBP250 million share buyback.
“A second increase to sales and profits guidance for the year to March 2025, a higher dividend and a share buyback programme are helping to drive Bunzl’s shares to new all-time highs, thanks in part to select acquisitions,” said AJ Bell investment director Russ Mould.
“Bunzl’s track record with making the most of its purchases is good, not least because they are bolt-ons designed to supplement momentum that is already there, rather than big-bang, so-called ‘transformational’ deals designed to conjure up growth that would not be there otherwise."
Bunzl shares were up 8.6% at 3,490.00 pence each in London on Tuesday morning. The wider FTSE 100 was up just 0.2%.
The London-based distribution and services provider said pretax profit fell 12% to GBP279.4 million in the first half that ended June 30 from GBP317.1 million the previous year.
Revenue declined 3.3% to GBP5.71 billion from GBP5.91 billion as a result of deflation which impacted the North American, Continental Europe, and UK & Ireland regions.
However, underlying revenue growth stood at 2.2% for the Rest of the World, driven by volume growth in Latin America and inflation benefits in Asia Pacific.
Bunzl raised its interim dividend by 10% to 20.1 pence per share from 18.2p and announced an initial GBP250 million share buyback programme which will start with immediate effect.
Analysts at Jefferies said they expect Bunzl to announce a further GBP200 million buyback with preliminary results.
The company further committed to allocating GBP700 million towards acquisitions, and capital returns if required, in each of the three years ending December 31 2027.
Chief Executive Officer Frank van Zanten said: "Despite a material increase in the amount of capital we have allocated towards self-funding value-accretive acquisitions, our consistently strong cash generation means that leverage has remained below our target range for some time.
"Our acquisition pipeline remains active and our runway of opportunity is substantial. Today the group is in an excellent position to pursue our pipeline of value-accretive acquisitions within the very large and fragmented global markets that we operate in, and also return excess cash to shareholders.
Thus far in 2024, Bunzl has committed GBP650 million towards seven acquisitions including the Australian cleaning equipment distributor PowerVac most recently in July.
Bunzl upgraded full-year guidance and now expects its operating margin to be "moderately above" 8.0% reported in 2023, up from June's revised guidance which forecasted an outcome "slightly above".
As previously announced, adjusted operating profit is also expected to show a strong increase from GBP944.2 million in 2023 and "robust revenue growth" is anticipated.
Matt Britzman, senior equity analyst at Hargreaves Lansdown, said: "Bunzl may not be a household name, but it’s a quality business in the global distribution sector that focuses on adding value through small acquisitions."
He added: "Committed investment in 2024 is already at record levels, and there’s no sign of it taking its foot off the gas with a promise to keep investing over the next few years to take advantage of its fragmented end markets."
By Sophie Rose, Alliance News senior reporter
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