Market news and an update from distributor Bunzl.

Market News

Treasuries endured a volatile session yesterday, with 10-year yields moving above 5% before falling back to 4.80%. Some of the market’s most prominent bears said the rout went too far – billionaire Bill Ackman said he was cutting his bearish bet on long-term Treasuries, highlighting there was too much risk in the road to remain short.

US equity market futures moved higher, with the S&P 500 currently expected to rise 0.3% at the open this afternoon. This morning Asia, markets were mixed: Nikkei 225 (+0.2%); Hang Seng (-0.9%); Shanghai Composite (+0.8%). China’s Central Huijin, a sovereign fund, intervened to prop up the market. The FTSE 100 is currently little changed at 7,367. Gold is $1,979 an ounce. Bitcoin rose after a court ruled in favour of Grayscale’s bid to create a spot Bitcoin ETF. Sterling trades at $1.2260 and €1.1510.

According to the IEA, global demand for oil will reach its peak this decade. The oil price gained, with Brent rising above $90 a barrel. Yesterday US oil major Chevron announced an agreement to acquire Hess in a transaction which values its smaller rival at $53bn, or $60bn including debt. The deal will enhance and extend Chevron’s production and free cash flow growth outlook in the 2030s. It is expected to be accretive to cash flow per share in 2025 after achieving synergies of $1bn. The transaction has been unanimously approved.

There’s a growing need for the ECB to rethink how soon it starts shrinking the €1.7tn stash of bonds it bought during the pandemic. The central bank is set to begin discussing ending reinvestments under the PEPP program this week before the current end-2024 cut-off.

Investors will be looking out for corporate earnings today, with a raft of announcements including Microsoft, Alphabet, GM, Visa, General Electric, Halliburton, 3M, and Spotify.

Source: Bloomberg

Company News

Bunzl has this morning released a brief Q3 trading update which highlights profit is in line with expectations, albeit revenue lagged. The company has also reiterated its profit guidance for the full year. In response, the shares have been marked down by 5%.

Bunzl is a specialist international distribution and services group. The company provides an efficient and cost effective one-stop-shop solution to enable its customers to reduce or eliminate the ‘hidden’ costs of sourcing and distributing a broad range of goods that are essential to the successful operation of their businesses but which they do not themselves resell – think disposable tableware, rubber gloves, and plastic trays. The strategy is to expand the business through organic growth, consolidating markets through focused acquisitions, and continuously improving operating efficiency. The group is also supporting customers looking to transition towards packaging better suited to the circular economy, with around half of Bunzl’s packaging sales made from alternative materials.

Revenue fell by 8.8%, held back by the weakness of sterling (-4.0%), the disposal of its healthcare business (-1.3%), one fewer trading day (-0.8%). The main tailwind was acquisitions which contributed growth of 2.0%. At constant exchange rates, revenue declined by 4.8%.

Underlying revenue, which is organic growth adjusted for trading days, fell by 4.7%, driven by a continued decline in Covid-19 related product sales, a reduced level of inflation benefit, and wider post-pandemic related normalisation trends which drove expected volume weakness consistent with the prior quarter. Overall, the revenue outcome was slightly below expectations.

Operating margin over the quarter was very strong, remaining substantially higher than compared to the pre-pandemic period in 2019, and slightly ahead of the group’s expectations. As a result, adjusted operating profit over the quarter was in-line with expectations.

Overall, revenue is now 29% higher and operating margin is substantially higher than that achieved in the comparable period in 2019 (i.e., pre-pandemic). 

As expected, the group has not provided an update on its financial position with this statement – as a reminder, at the half-year stage, gearing was 1.1x net debt to EBITDA. This provides the flexibility to make acquisitions, with 14 deals agreed in the year to date with a total committed spend of £425m. As highlighted above, the group also optimised its portfolio through the disposal of its UK healthcare business. Bunzl also has a strong track record of generating shareholder returns, with more than 30 consecutive years of dividend growth.

Looking forward, the group has reiterated its confidence that its full-year adjusted operating profit will be moderately higher than in 2022 at constant exchange rates. Group revenue, at constant exchange rates, is expected to be slightly lower than in 2022, with the benefit of announced acquisitions offset by some organic decline, following strong organic growth in recent years, and a small impact from the UK healthcare disposal. The compares to previous guidance for revenue to be slightly higher than last year. However, the 2023 operating margin is now expected to reach the record level seen in recent years.

Overall, we believe Bunzl is well placed because of its predominant focus on high volume/low value consumable products and the ability for the business to adapt quickly to changing demands and challenges, including disrupted supply chains. Its business proposition is highly valuable to its customers, allowing them to focus on their core business and run their operations more cost-effectively by achieving purchasing efficiencies and savings, while at the same time freeing up working capital, improving their distribution capabilities.

Source: Bloomberg