This Company Is an Inflation Winner. Its Stock Looks Like a Buy.
Accelerating inflation, rising interest rates, and worries about a coming economic slump have made it difficult for companies to thrive.
With more of the same likely this year, investors hoping to play defense might look for companies that use inflation to their advantage. That’s where a stock like Bunzl (ticker: BNZL.UK) can be attractive. The British company is a worldwide distributor of equipment for food-service providers and other companies. Its logo can be found on disposable cutlery in fast-food restaurants and on the sides of trucks delivering cleaning and safety products.
The company, which operates in 31 countries in the Americas, Europe, and Asia Pacific, had a decent 2022. It benefited from the pickup in activity as most of the world emerged from the pandemic—and was able to raise prices along the way.
The stock fell about 4% last year, compared with a 0.9% gain in the U.K.’s FTSE 100 index of blue-chip companies. It offers a 2.1% dividend yield.
While that may sound better than stocks in the S&P 500, which fell almost 20% last year, it’s important to note that the British pound depreciated more than 10% against the dollar in 2022, making returns for dollar-based investors that much weaker. By the same token, any recovery in the pound in 2023 would boost returns.
Bunzl had a “strong 2022, benefiting from the highest levels of product inflation in decades, plus continued post-lockdown rebounds,” says Karl Green, an analyst at RBC Capital Markets, who rates the stock a Hold.
On Dec. 21, Bunzl updated the market to say that it expects revenue for 2022 to increase 17% at actual exchange rates and 10% at constant exchange rates. It expects an increase in revenue in 2023 and operating margin to be higher than historical levels.
“Our teams have successfully navigated the inflationary environment and supply-chain disruption experienced this year to ensure customers have reliably received the essential products they need,” said Chief Executive Officer Frank van Zanten.
The firm traces its origins to the Austrian Empire. Moritz Bunzl opened a haberdashery shop selling clothing and textiles in the city now known as Bratislava in 1854. It moved to Vienna in 1883 and started manufacturing paper products, and relocated to London in 1938. It has been listed on the London Stock Exchange since 1957. The company expanded into distribution of paper in the 1980s. In 2002, it sold its fine-paper distribution business.
Bunzl thrives on acquisitions—historically they have driven three-quarters of the firm’s growth. Depressed share prices after the recent increase in interest rates might spur more purchases. The firm announced four in December, with CEO van Zanten emphasizing that they all offer double-digit margins.
Bunzl, based in London, employs 21,000 people and has a market value of 9.3 billion pounds sterling ($11 billion). Its distribution services are used by industries including groceries, cleaning, and healthcare. It trades at 15 times expected earnings for the coming year and is valued at a 100% premium to its peers. Its shares traded at £27.78 at the start of 2023. Dominic Edridge at Deutsche Bank thinks they could go to £33 and rates them a Buy.
Overall, analysts are divided on the valuation. Of the 12 ratings collected by FactSet, four are a Buy, six are a Hold, and two are a Sell. “Bunzl has a reputation for guiding conservatively and raising expectations through the course of the year,” says Deutsche Bank’s Edridge. “Guidance does not appear to include future acquisitions and is likely to err on the cautious side, if history is any guide.”