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On Thursday, Bernstein SocGen Group’s analyst Will Kirkness adjusted the price target for Bunzl (OTC:BZLFY) Plc (BNZL:LN) (OTC: BZLFY), a leading international distribution and outsourcing group with a market capitalization of $12.8 billion, reducing it to £37.00 from the previous £40.00. Despite this change, Kirkness reaffirmed the Outperform rating on the company’s shares, which currently trade near $19.15. According to InvestingPro data, the company appears fairly valued based on its proprietary Fair Value model.
Kirkness supports the view that Bunzl’s strategy for expanding its EBITA margin remains viable, anticipating the company’s margins to reach double digits. He cited Bunzl’s current forward price-to-earnings ratio of 14 times, which is nearly equivalent to its valuation during the COVID-19 pandemic, suggesting that the current share price represents an attractive entry point for investors. Kirkness highlighted the company’s potential for positive earnings per share (EPS) momentum driven by margin improvements and mergers and acquisitions (M&A) activities.
The analyst also pointed out that Bunzl’s organic growth is expected to pick up pace. The company’s guidance for the fiscal year 2025 indicates a modest increase, which Bernstein SocGen interprets as 0-1% growth, with their own estimate being 0.7%. This aligns with InvestingPro’s data showing a 3% revenue growth forecast for FY2025, despite recent revenue declining 0.18% in the last twelve months. This forecast does not account for any positive changes in the pricing environment, which saw an estimated 2% decline in the fourth quarter of 2024. However, the recent decrease in pulp and oil prices is seen as a favorable factor for the company.
Furthermore, Kirkness mentioned the potential benefits of aggressive economic measures in key European markets, referencing a "whatever it takes" approach that could positively impact Bunzl’s operations in Germany, France, the Netherlands, and Spain—which together account for 70% of the company’s Central European business. The company’s moderate debt levels and healthy current ratio of 1.18 provide financial flexibility to navigate market changes. On the other hand, he noted potential uncertainties arising from tariffs, particularly concerning China, which represents 10% of Bunzl’s group direct purchases, and the smaller markets of Mexico and Canada, which account for less than 1% of US purchases. These uncertainties could affect demand and indirect supply chains.
In other recent news, Bunzl Plc received an upgraded stock rating from Citi, which moved the rating from Neutral to Buy, maintaining the price target at GBP37.00. This upgrade comes after analysts observed Bunzl’s shares lagging behind the market by approximately 8% since December. Citi analysts highlighted the broader market context, particularly the rising bond yields, as a factor prompting the upgrade. Despite previous concerns about deflationary pressures affecting Bunzl’s organic growth and margins, Citi now projects a potential estimated total return of around 15%. The recent upgrade is a shift from December when Citi downgraded Bunzl from Buy to Neutral due to valuation concerns. The current market dynamics have led to a reassessment of Bunzl’s investment potential. Citi’s maintained price target reflects a steady outlook on Bunzl’s value, even after the recent market underperformance. The upgrade acknowledges the risks previously highlighted by Bunzl regarding deflationary headwinds impacting growth and margins.
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