Broker tips: Bunzl, Star Energy

Bunzl's recent share-price rebound means the stock is "too expensive", according to RBC Capital Markets which reiterated an 'underperform' position and 2,600.0p target price on the distribution company on Monday.

Following a trading update last week, the broker reviewed its estimates for the company, but made minor changes to profit forecasts for the next two years. It expects modest organic revenue declines in 2024 with limited recovery in 2025 as a result of recent falls in raw materials pricing – "which we believe underpin the bulk of Bunzl's product portfolio", RBC said.

"BNZL's share price has disconnected from a composite index of the global chemicals and paper/packaging sectors to which it has historically been highly correlated, and we see scope for pressure on both consensus organic revenue growth assumptions and BNZL's relative valuation on a 12-month view," the broker said.

"We see the group's heavy dependence on M&A for the bulk of profit growth as unique within our coverage universe and see the stock as overvalued compared to other companies in the wider sector with stronger organic profit growth profiles and M&A optionality on top."

Analysts at Canaccord Genuity lowered their target price on exploration and production company Star Energy from 73.0p to 65.0p on Monday but stood by their 'buy' rating on the stock following recent updates.

Canaccord Genuity said Star's recent updates highlighted the progress made across its "diverse UK onshore oil and gas production base" and in the Croatian geothermal business.

Over the past year, Canaccord said Star has turned around "a declining UK production profile" for the first time in many years, through a combination of greater focus on incremental low-cost enhancements to well performance and significantly improved surface facilities efficiencies and uptime.

"That has clearly borne fruit over the past 12+ months, and we think there is plenty of scope to maintain that elevated performance at least over the next few years. That is important because while the company sees longer-term growth through its geothermal businesses, it is the UK conventional hydrocarbons that provide the backbone of cashflow in the nearer-term," said Canaccord.

The Canadian bank thinks the progress made by Star in the UK and in Croatia was "substantial", and certainly not reflected in its recent market performance. However, the analysts trimmed their risked NPV10 target price to reflect the slow pace of progress of the UK geothermal business but still think the company's valuation footing has "improved significantly" over the past year.