Bunzl rises as price increases help it keep ahead of inflation in 2022

By Geoffrey Smith

Investing.com -- Shares in Bunzl (LON:BNZL) rose at the open in London on Monday after the diversified services group forecast it will struggle to meet last year's profit figure in 2023.

The company repeated its guidance that adjusted earnings per share are likely to fall slightly in 2023 due to higher interest rates and a higher effective tax rate. That will offset the gain expected from previous acquisitions and from an expected improvement in operating margins, it said.

Bunzl is sticking with its policy of incremental acquisitions, which saw it make 12 separate deals in 2022. It announced two more on Monday, agreeing to buy German PPE specialist Arbeitsschutz-Express and Canada-based packaging group Capital Paper for undisclosed sums. The German company had revenue of €41 million (€1 = $1.0554) in 2022, while Capital Paper had sales of 26M Canadian dollars ($1 = CAD1.3596).

The group had a solid 2022, supported by a strong performance from its food packaging division as entertainment venues enjoyed their first full year in three without major disruptions from COVID-19. That offset a reversion to more normal levels of trading for its smaller division that supplies products to the healthcare and hygiene industries.

Earnings per share rose 13% to 184.3 pence on a 17% rise in revenue, allowing the group to raise its dividend by 10% to 62.7p, a yield of 2.1% at Friday's closing price.

The group has been one of many to expand its profit margins over the last year, more than passing on rises in input costs to its customers. The adjusted operating margin rose to 7.4% from 7.3%, "remaining well ahead of historical levels," while underlying operating profit was £885.9M (£1 = $1.966), an increase of 11%. Reported operating profit rose 18% due to the weakness of sterling, which inflated the value of its foreign earnings.

Bunzl is also a big supplier of catering cleaning services to commercial properties, and its results since the pandemic have been conspicuous for showing at best a slow recovery in that division due to the spread of remote work. While catering demand remains well below pre-pandemic levels, it noted that demand for cleaning services "saw some improvement in office-based activity towards the end of the year."

In North America, it noted that "wage rates, which rose particularly strongly in 2021, saw their year-on-year impact moderate over the course of the year, and exited the year closer to more typical historical levels of inflation."

Bunzl stock rose 2.5% in response to the news, touching a six-month high before retracing. After rising by 150% from their pandemic lows, the shares have failed to make a new all-time high since August.