Bunzl shares jump on upgraded outlook, share buyback launch

Bunzl shares were surging on Tuesday morning after it upgraded its full-year guidance and launched a share buyback programme, even after first-half revenue slipped 3.3% to £5.71bn.

The FTSE 100 firm said that at constant exchange rates, the revenue decline was a marginal 0.4%.

Despite the revenue dip, Bunzl saw a 3.9% rise in adjusted operating profit, reaching £455.5m.

The growth was stronger when adjusted for currency effects, with a 7.4% increase.

Its operating margin improved significantly, rising from 7.4% to 8.0%, driven by enhanced margin management and contributions from higher-margin acquisitions.

However, reported operating profit decreased by 2.8%, partly due to a currency-related loss from the disposal of its Argentine business.

Adjusted earnings per share (EPS) increased 2.8% to 90.8p, with a more robust 6.2% rise at constant exchange rates.

Nonetheless, reported basic earnings per share dropped by 16.4%, largely due to the Argentina disposal.

The interim dividend per share was raised by 10.4% to 20.1p, marking the 31st consecutive year of dividend growth.

Bunzl’s strategic initiatives included seven acquisitions by August, with a total committed spend exceeding £650m.

The company also completed two divestitures to optimise its portfolio and relocated or consolidated 13 warehouses to enhance operational efficiency.

Notably, 73% of orders were processed digitally in the first half, up from 71% in 2023.

Looking ahead, Bunzl upgraded its 2024 adjusted operating profit guidance, expecting significant growth driven by improved margins and recent acquisitions.

The group also announced a £250m share buyback, with plans for an additional £200m buyback at the 2024 preliminary results.

Bunzl said it was committed to allocating around £700m annually towards acquisitions and capital returns through 2027.

The outlook for 2024 included expectations of robust revenue growth at constant exchange rates, despite a small decline in underlying revenue.

Its full-year operating margin was projected to slightly exceed 2023 levels, with a full-year effective tax rate of approximately 25.5% and net finance expenses around £100m.

“I am very pleased with the performance of the group during the first half of 2024, with strong growth in adjusted operating profit for the period. We have significantly increased the group's operating margin in recent years to 8%, driven by good margin management, including increased own brand penetration, and the impact of recently acquired businesses,” said chief executive officer Frank van Zanten.

“In 2024 our committed acquisition spend is already at a record high of over £650m.

“Consistent strong performance means Bunzl has generated around £2.9bn of free cash flow between 2019 and 2023, significantly strengthening our balance sheet.”

Van Zanten said that despite a material increase in the amount of capital allocated towards self-funding value-accretive acquisitions, the firm’s “consistently strong” cash generation meant that leverage had remained below its target range for some time.

“Our acquisition pipeline remains active and our runway of opportunity is substantial.

"Today the group is in an excellent position to pursue our pipeline of value-accretive acquisitions within the very large and fragmented global markets that we operate in, and also return excess cash to shareholders.

“We are committing to steadily return leverage to our target range by the end of 2027, and therefore announce a substantial share buyback that will commence with immediate effect.”

At 0848 BST, shares in Bunzl were up 10.27% at 3,544p.

Reporting by Josh White for Sharecast.com.