Morning Note: Market news and an update from distributor Bunzl.
Market News
US equities moved higher last night – S&P 500 (+0.4%); Nasdaq (+1.2%, to a fresh record high) – with notable gainers including Alphabet (Google) and Tesla. Nvidia fell again and is now in correction territory. Energy stocks also dragged on the back of a subdued oil price.
The 10-year Treasury yield inched up to 4.42%. Gold held steady at $2,653 an ounce, while Bitcoin topped $107,000.
In Asia this morning, equity markets fluctuated, as traders awaited a raft of interest-rate decisions by central banks this week: Nikkei 225 (-0.2%); Hang Seng (-0.2%); Shanghai Composite (-0.7%). Reuters reported that Beijing plans to set an annual growth goal of about 5% for next year, and raise the budget deficit to 4% of gross domestic product
The FTSE 100 is currently trading 0.7% lower at 8,199. Moody’s has upgraded Imperial Brands on the back of sustained operational strength and prudent policies. UK average earnings growth excluding bonuses rose 5.2% in the three months through October from a year earlier. Sterling trades at $1.2693 and €1.2090.
President Macron’s approval rating fell by two points to 24%. Marine Le Pen says she’s ‘more positive’ after meeting the French PM. The Bank of France cut its 2025 growth outlook to 0.9% vs 1.2% in September. It also cut its 2026 forecast by 20bps to 1.3%. The French National Assembly unanimously adopted a stopgap budget bill intended to enable the state to keep functioning from January.
Source: Bloomberg
Company News
Bunzl has this morning released an update on trading prior to entering its closed period for the year ending 31 December 2024. The statement highlights that deflation has been more persistent than expected, leading to a slight impact on adjusted operating profit. In response the shares have been marked down by 5% in early trading.
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. The group now processes around three quarters of orders digitally, supporting customer retention and enhancing operational efficiency.
Group revenue in 2024 is expected to be between 0% to 1% lower at actual exchange rates, and around 3% higher constant exchange rates. Adjusted for acquisitions, underlying revenue is expected to experience a small decline. Within underlying revenue, volume growth in the third quarter is expected to continue in the fourth quarter, although deflation is likely to be more persistent than previously anticipated.
This is expected to have a slight impact on adjusted operating profit in 2024, driven by Continental Europe. However, overall group adjusted operating profit in 2024 will still see a strong increase in comparison with 2023 at constant exchange rates. The operating margin for 2024 is strong and continues to be moderately above the level reported for 2023.
Bunzl’s balance sheet remains strong. This provides the flexibility to make acquisitions and undertake share buybacks. In August 2024, the group made a commitment to allocate c.£700m p.a. primarily to be invested in value-accretive acquisitions and, if required, returns of capital in each of the three years ending 31 December 2027, which is intended to steadily return Bunzl to its target leverage range by the end of 2027.
In 2024, the group has committed spend on acquisition of more than £850m. Purchases included RCL Implantes, a Brazilian distributor specialising in surgical and medical devices, and Clean Spot, a distributor of cleaning and hygiene products and equipment in Canada. The acquisition pipeline remains active.
In August, the company initiated a £250m buyback, of which c.£200m has now been completed. In addition, the group has confirmed a further £200m buyback will be executed during 2025. In addition, we expect the company to raise its dividend at the time of the full-year results in February.
Looking ahead, despite uncertainties relating to the wider economic and geopolitical landscape, the group expects robust revenue growth in 2025, at constant exchange rates, driven by announced acquisitions and slight underlying revenue growth. The operating margin is expected to be maintained in-line with 2024 and to remain substantially higher compared to pre-pandemic levels, driven by higher margin acquisitions, as well as a good underlying margin increase.
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 within 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