Bunzl Defies Analyst Dislike With Rise to Record: London Mover

Bunzl Plc, the world’s largest distributor of disposable tableware and food packaging, advanced to a record high even as the company remains analysts’ second-least favored stock in the U.K.’s FTSE 100 Index.

The shares rose for the ninth trading day in the last 10 to 1,342 pence, an advance of 0.5 percent and extending this year’s gain to 33 percent.

Bunzl’s advance comes even as nine of 19 analysts tracked by Bloomberg advise selling the stock. Six analysts have a hold recommendation, while four advocate buying. That gives the company an average rating of 2.42 on a 5-point scale, according to data compiled by Bloomberg. Only William Morrison Supermarkets Plc, the U.K.’s fourth-largest supermarket operator, has a lower rating among FTSE 100 stocks, at 2.31.

Bunzl traces its roots back to a haberdashery business founded in 1854 in Bratislava, now the capital of Slovakia. Family members moved the business to Vienna and then emigrated to Britain as Nazi Germany annexed Austria, and started a paper company. Bunzl, based in the U.K. capital, now distributes safety, cleaning and health-care products, as well as grocery and foodservice items, in 27 countries.

“Most people make the mistake of looking at what they do,” Mike Murphy, an analyst at Numis Securities Ltd. with an add rating on the stock, said in a telephone interview. “Their business model and returns on capital are very consistent.”

‘Global Champion’

For the past 20 years Bunzl had achieved operating margins of about 7 percent, with a pretax return on capital of 13 percent to 15 percent, said Murphy, the top-rated analyst for the stock based on the Bloomberg Absolute Return Ranking. He has a 12-month price target of 1,505 pence, the highest among 16 analysts tracked by Bloomberg.

No other company in the world has Bunzl’s scope and scale, Murphy said. “It is one of our global champions.”

Charles Wilson, an analyst at Goldman Sachs Group Inc., cut Bunzl to sell/neutral from neutral on May 3 in a note titled “Running Out of Steam.” The stock is fully valued with limited scope for further upgrades, he said. Bunzl has risen 50 percent since the start of last year.

The company is capable of boosting earnings and dividends by more than 9 percent a year until 2020, Murphy said in a note to clients. Its valuation “remains attractive for this global consolidator and earnings compounder.”

Acquisition Spending

Bunzl has announced more than three dozen acquisitions, mainly of closely held businesses, in the past five years, according to data compiled by Bloomberg. The latest acquisition, completed May 1, was for three units of Jeminex Ltd., a Sydney-based distributor of industrial supplies. The purchase marked Bunzl’s entry into the Australian safety market, and the three businesses are expected to have annual revenue of A$160 million ($157 million) this year, according to the company.

Bunzl spent 272 million pounds last year buying companies with annual revenue of more than 500 million pounds. It finances most of its acquisitions from cash flow.

First-quarter revenue rose 10 percent from a year ago, with acquisitions supplying most of the increase, Bunzl said April 17. Sales gained about 5 percent in 2012 to 5.36 billion pounds.

Bunzl has advanced in 18 of the past 22 years, rising about 20-fold in that time. The FTSE 100 Index tripled in the period.

The stock is trading 16 percent higher than its 12-month average price target, Bloomberg data show, suggesting it may decline over the next year. Only five other companies in the FTSE 100 Index trade at a proportionately greater level above their 12-month average price target. The index as a whole may gain about 2.8 percent in the next 12 months based on the average price targets of its constituents.

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