Shares in distribution firm Bunzl (BNZL) gained 6% to £19.94 early on Monday after it posted an upbeat trading update for the first half of the year.

Adjusted for the number of trading days, turnover for the six months to 30 June is expected to be up 5% on last year thanks to a 2% increase in organic sales and a 3% contribution from acquisitions.

Chief executive Frank van Zanten hailed the firm’s ‘strong performance in the half year against the background of challenging trading conditions due to the Covid-19 pandemic.’


The breadth and geographic spread of its customer base has been a big advantage, with growth expected to be ‘particularly strong’ in Continental Europe and Rest of the World, driven by demand for Covid-19 related products, while North America and UK & Ireland are expected to see ‘slight increases’ in revenue.

Also, the firm has been able to offset the fall in demand from retail and food service clients with better sales to the safety, hygiene and healthcare sectors.

This has had the effect of boosting margins as safety, cleaning and hygiene and healthcare products typically have a higher profit margin than retail and food service supplies.

As a result, the group’s operating margin (operating profits as a percentage of sales) is expected to be ‘modestly higher’ than last year’s first half.


Despite the strong first half performance, the firm remains cautious on the full year outcome due to ‘the lack of visibility of how the virus might affect trading conditions during the second half of the year.’

Its base case assumption is that second half orders for Covid products won’t reach the same level as the first half as many of its customers have been building their stockpiles for the remainder of the year.

So the retail and food service sectors may see a recovery of sorts, the grocery, cleaning and hygiene and healthcare sectors should stay ‘resilient’ while the safety sector may be more mixed.

Bunzl’s financial position remains solid, with ‘strong cashflows and a robust balance sheet’, and it has already set aside funds to repay employee-related government support and bring forward the settlement of tax deferrals, allowing it to start 2021 with a ‘clean sheet’.

Shore Capital analyst Robin Speakman expects to upgrade his earnings forecasts to a flat performance for the full year, if not a small increase, adding 'Bunzl is a strong business, this morning demonstrating the unerring qualities of its model for investors.'


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Issue Date: 15 Jun 2020