JPMorgan upgrades Bunzl to 'overweight'

The bank relaunched coverage of Bunzl in March with a ‘neutral’ rating, even as it wrote that Bunzl was "fundamentally more attractive than it was five years ago" given structurally higher margins.

JPM said its concerns were around any unwind of inflation benefits within margins and negative-for-longer volumes.

"Bunzl’s 1H24 update showcased the work that has gone ‘under the hood’ at the company on margins, supplemented by a clear capital allocation policy," it said.

"The key new information for us has been the clear upside to the North American margin from higher own brand penetration within Grocery and Foodservice (40% of group revenue, mid single digit percent upside to group EBITA), as over the past year Bunzl has secured manufacturing lines with suppliers."

JPM noted that Bunzl is trading on a 16.5x 2025 estimated price-to-earnings, near its median P/E relative to the market, and below its median in absolute terms. It also said the stock offers a 6% free cash flow yield.

"With EPS growth possibly in the 10-15% range per annum at least over the next three years (3% organic growth, 1% from margin accretion, 2% from buybacks and mid single digit % from M&A), we see upside to the valuation," it said.

At 1000 BST, the shares were up 1.7% at 3,524p.