Goldman Sachs upgrades Bunzl to “neutral” after year-to-date underperformance

Investing.com -- Goldman Sachs upgraded Bunzl (LON:BNZL) to “neutral” from “sell” following the company’s year-to-date underperformance, with shares down roughly 30%, in a note dated Friday.

Shares of the British distribution and outsourcing company were up 3.5% at 05:04 ET (09:04 GMT).

The brokerage cited the earlier profit warning, when Bunzl lowered expectations for 2025 growth and margins, as a key factor in the decline. 

Goldman Sachs said the company’s in-line first-half results and resumption of its share buyback program likely reduced near-term risks to earnings and leverage, creating a more balanced risk/reward profile. The new 12-month price target is 2,510p, implying roughly 5% upside.

For fiscal 2025, Goldman Sachs forecasts broadly flat underlying growth, consistent with management guidance. 

Growth is expected to improve gradually in 2026, although visibility remains limited due to macroeconomic volatility. EBITA margins are projected at 7.6% in 2025, slightly below 8% levels. 

Bunzl’s margins have expanded from 7% in 2019 to 8.3% in 2024. The guidance downgrade this year raises questions about whether the company can return to 8% or higher margins, though modest improvement is expected over the next few years.

Following the de-rating, Bunzl shares trade at approximately 13 times 2026 P/E on Goldman Sachs estimates, below the historical mid-cycle multiple of 17 times.

Since being added to Goldman Sachs’ Sell List on February 2, 2022, shares have declined roughly 15%, compared with a 26% gain for the FTSE World Europe Index.

Goldman Sachs made minor estimate adjustments following the first-half results, reflecting a slightly better performance than expected and the impact of recently closed acquisitions.

Organic growth forecasts were raised to 0.3% from 0.1%, while EBITA margin estimates remain unchanged at 7.6%. Revenue and EBITA estimates for 2025-2029 were increased by about 1%, and EPS estimates rose roughly 2% due to the share buyback resumption. 

Valuation was updated to the average of 2026/27 estimates, resulting in a 12-month price target of 2,510p, up from 2,375p, implying approximately 7% upside.

Revenue estimates for 2025 are broadly in line with Visible Alpha consensus data, with Goldman Sachs’ organic growth forecast about 60 basis points ahead. 

The EBITA margin forecast is slightly below consensus, reflecting caution over achieving a steep margin improvement in the second half after delivering 7% in the first half. Estimates for 2026 are broadly in line with consensus.

Key risks highlighted include sensitivity to GDP growth, potential margin variability from pricing pressures or faster growth in own-brand products, and the impact of acquisitions, which have historically contributed significantly to Bunzl’s topline growth. 

At the current valuation, Bunzl trades at an implied 14 times P/E on 2026 estimates, in line with projected revenue growth over 2026-2028.