Bunzl – Easing Inflation Gives Margins A Boost, But It’s A Double-Edged Sword

  • Half-year revenue rose 4.5% to £5.9bn, up 0.6% at constant currency
  • Adjusted operating profit rose 6.5% to £438.3m, up 2.5% at constant currency
  • Dividend up 5.2% to 18.2p
  • 12 acquisitions announced year-to-date

A Double Edged-Sword For Bunzl

Bunzl plc (LON:BNZL) generates most of its revenue and profit outside the UK, with the US a key region, so it’s not the economic conditions at home that turn the dial. Inflation easing in the US is a double-edged sword. On the one hand, lower input costs have helped margins push higher over the half, but the flip side is a drop in revenue as the pricing on a lot of Bunzl’s products can be linked to inflation.

Add in a drop in COVID-related sales and the underlying business is seeing a bit of weakness creep in, comparable periods are tough though. Aside from lower costs, margins also got a bump from consumers shifting to own-brand products in response to ongoing pressures on income.

Acquisitions remain key to the Bunzl story, with £350m committed so far this year. Strong cash generation underpins self-funded growth and the 12 acquisitions announced so far this year highlight the intent. The announced acquisition in Poland marks the group’s first foray into the region, one that’s previously been on the radar. The protective equipment distributor fits nicely in with Bunzl’s model and should give a platform to build on in the region.

Article by Matt Britzman, equity analyst at Hargreaves Lansdown