Morning Note: MARKET NEWS AND UPDATE FROM BUNZL

Market News

Market volatility is being spurred by geopolitical anxiety. President Zelenskiy said he’s willing to meet Trump again if invited back to the US, adding Kyiv is ready to accept a minerals deal that was put on hold last week. Emmanuel Macron told Le Figaro that he and Keir Starmer are working on a plan to reach a one-month truce in Ukraine.

The euro gained with Eastern European currencies as the region’s leaders scrambled to offer Ukraine their support amid concerns of a US pullback. European defence names – BAE Systems (+12%), Rheinmetall (+15%), Thales (+15%), Rolls-Royce (+5%) – have moved sharply higher on the expectation of higher spending.

Meanwhile, Treasury Secretary Scott Bessent said Mexico has proposed matching US tariffs on China and urged Canada to do the same, signalling a potential path to avert levies. Trump risks losing support from Americans who say he isn’t prioritising the battle against inflation, two new polls suggest. 10-year Treasury yields trade at 4.24%, while gold is $2,868 an ounce. Bitcoin slipped after rallying sharply yesterday as Trump named various tokens for a US crypto reserve.

In Asia this morning, equities were firm: Nikkei 225 (+1.7%); Hang Seng (+0.1%). China’s February PMI Manufacturing came in at 50.2, a touch ahead of the 49.9 forecast. The PBOC vowed to increase credit to private and small firms by further boosting and diversifying financing channels such as stocks, bonds and loans.

The FTSE 100 is currently 0.4% higher at 8,843. Shell is exploring a potential sale of its chemicals assets in the US and Europe, the WSJ reported. The Bank of England may need to pause rate cuts amid a renewed bout of inflation, former policymakers warned, even as Andrew Bailey downplays a predicted surge in prices. Sterling trades at $1.2610 and €1.2120.

Source: Bloomberg

Company News

This morning, Bunzl has released 2024 results which were in line with expectations. The company has reiterated its guidance for 2025 and its 3-year capital allocation commitment. 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.

During 2024, revenue rose by 3.1% at constant exchange rates (CER) to £11.8bn, in line with company guidance. Adjusted for acquisitions, underlying revenue fell by 2.4%. This was mainly driven by deflation but also strategic changes in the US foodservice redistribution business to increase own brand penetration, which alongside price competition resulting from the deflationary environment, led to volume softness.

Underlying trends did, however, improve in the second half, driven by slight volume growth and a small easing of deflation. Approximately 28% of revenue was delivered through the sale of own brand products.

Underlying revenue fell by 3.4% in North America (the group’s largest division, 56% of revenue), driven by deflation and volume reductions in the foodservice redistribution business. Elsewhere, Continental Europe and the UK & Ireland fell by 1.7% and 4.2% respectively, while the Rest of the World rose by 5.5%.

By sector, the Safety, Cleaning & Hygiene and Healthcare businesses grew by 0.4%, while Foodservice & Retail fell by 4.2% and Grocery & Other was down 1.8%.

Adjusted operating profit grew by 7.2% at CER to £976m, versus guidance for a strong increase. The operating margin increased from 8.0% to 8.3%, a new record, versus guidance for moderate growth. Progress was helped by operating efficiencies which have been driven by 19 warehouse consolidations and relocations, along with accelerating investments into digital solutions and automation. Adjusted EPS grew by 5.5% at CER to 194.3p.

Cash conversion came in above target (93% of operating profit) and the balance sheet remained strong - financial gearing ended the year at only 1.8x net debt to EBITDA. 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, announced 13 acquisitions with record annual committed spend of £883m. The company has completed an initial £250m buyback and is currently undertaking a further £200m programme. In addition, the company has announced an 8.2% increase in its dividend to 73.9p. This is the 32nd year of consecutive annual dividend growth and equates to a yield of 2.3%.

Looking ahead, despite uncertainties relating to the wider economic and geopolitical landscape, the group has reiterated its guidance for 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