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Bunzl (first-half earnings 28 August)
Bunzl is expected to report 7.3% growth in first-half earnings, to 59.1p per share, while revenue is expected to rise by 4.3% to £4.3 billion. The firm has beaten estimates on both metrics in six of the last seven earnings reports. The average move on results day is 1.97%, while current options pricing suggests a 3.16% move.
Last year saw a higher-than-normal level of acquisitions, even for this serial acquirer. New business in North America has been a key driver of growth, but the second quarter’s (Q2’s) 4% growth, down from 6% in Q1, suggests the overall rate of growth is still likely to slow. Second-half margin weakness in 2017 needs to reverse in order to maintain investor enthusiasm, and the weakening of sterling should provide an earnings tailwind.
At 18.2 times forward earnings the stock is only slightly below its five-year average of 19.3, having been a ‘value play’ (relative to historical levels) back in early 2018 when the forward price-earnings (PE) ratio dropped down to 16. The bullish case is undermined to some extent by the fact that earnings are expected to grow by 4% over the next three years, versus a 10.8% average over the past five years.
The long-term trend in Bunzl is still intact, even if the price has not been able to hold above the £23.50 highs from June, and the £24.12 high is still a longer-term goal. Dips towards £22.30 since June have found buyers, so we either need a close above the June high of £23.60, or a close below £22.20.