Bunzl looking a bit toppy, despite solid interims

Bunzl is not a particularly glamorous firm, but it has been doing well carrying out those tricky but dull activities that companies like to outsource - purchasing, storing and transporting non-food consumable products.

The shares hit a 52-week high earlier this month, which may account for why there was a bit of profit taking after a solid set of interim results on Tuesday morning.

Growth rates for sales, profits, earnings per share (EPS) and the dividend did not quite reach double figures in percentage terms, but were not far off, and it was only unhelpful exchange rates which prevented adjusted profit before tax and EPS from notching up double-digit growth.

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Revenue rose 7% in both actual and constant exchange rate terms, and while some of this was due to the acquisition-hungry outsourcing firm's recent purchases, organic growth was still a creditable 4%.

North America put in a good shift, with revenue rising 7% (9% at actual exchange rates) year-on-year due to strong organic growth and the impact of Netpak and Foodhandler, which Bunzl acquired in July 2011 and April 2012 respectively.

Referring to the North American business, Michael Roney, Chief Executive of Bunzl, said: "Despite continuing increases in fuel, freight and health-care expenses, our operating costs decreased as a percentage of sales due to the revenue growth and several cost reduction initiatives."

Continental Europe also performed well; revenue rose 10% (4% at actual exchange rates) as a result of organic growth and the impact of acquisitions and operating profit. Synergies made from acquisitions this year and last have compensated for lower levels of organic growth in a region which has suffered from well-publicised economic hardships.

Back in the UK & Ireland, Bunzl proved it can sell companies as well as buy them, as it offloaded its vending business in the second half of last year. The absence of a contribution from vending this time round was largely responsible for a 1% fall in revenue on the home front, which masked organic revenue growth.

The good news is that margins are stabilising in the UK & Ireland, which means that the company has not felt obliged to try to pass on price increases to customers who, in the current environment, are very reluctant to tolerate them.

In the Rest of the World both revenue and operating profit increased 29% to £183.8m and £15.3m respectively, due to the combination of organic revenue growth and the impact from acquisitions.

The firm is, as ever, very much on the look-out for more acquisitions, and although the net debt to EBITDA (earnings before interest, tax, depreciation and amortisation) ratio at the end of June had risen to 1.8 from 1.7 at the end of 2011, the business chucks off a lot of cash - cash generated from operations in the first half of 2012 totalled £133.4m - so servicing the debt mountain of £685.3m is not proving to be a problem.

When shareholders see numbers like those, however, they get to wondering what would happen if the company ever kicked the acquisition habit and just ran the business for cash, but it is hard even for income hungry shareholders to grumble at a 9% increase in the interim dividend to 8.80p, which puts the shares on a dividend yield of 2.4%; not great, but blame the 50% share price appreciation over the last year for that.

Besides, the company seems to be rather good at picking and integrating acquisitions. So far this year the company has announced six acquisitions, which won't give advertising firm WPP a run for its money in the chequebook-bashing sweepstakes, but it is still close to one acquisition a month, and the fact that the acquired companies are spread far and wide - from Zurich, to Chicago to Queensland and Israel - indicates the assiduous nature of the firm's acquisition programme.

"Acquisitions remain an important part of our strategy to develop the business, the pipeline is promising and we expect to complete more transactions across the group," Roney said.

JH