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FTSE 100 distribution giant Bunzl (LSE: BNZL) never caught my attention as either a growth or dividend stock.
However, after half-year and annual results I re-examine big-name firms to make sure I have not missed something.
Such is the case with Bunzl, which released its H1 2025 results on 26 August.
How do the numbers look to me?
Looking at the figures, I am reminded of the old trading phrase: “If you didn’t like it before, you’ll hate it now.“
Despite a slight rise in revenue – 0.8% year on year to £5.760bn – adjusted operating profit dropped 11.2% to £404.5m. Adjusted profit before tax fell 15.4% to £3454.6m. And adjusted earnings per share slid 14.3% to 77.8p. Oh dear.
In response, CEO Frank van Zanten said: “We remain strongly focused on improving performance across the business.” I should hope so.
For its North American business, this includes more cost-saving, improved decision-making, and enhanced branded supplier engagement. For the other major area of its business — Continental Europe – it also comprises better pipeline management. This is basically making better use of sales leads to secure new business.
However, the company highlighted rising inflation and increases in cost-of-living pressures as key risks ahead. I agree and would also include the high degree of competition in the sector that could further reduce its margins.
That said, analysts forecast that Bunzl’s earnings will increase 5.1% a year to end-2027.
Is there value in the share price?
Price is whatever the market will pay for a stock, while value reflects the true worth of the underlying business.
In my experience being able to identify and then quantify the price-valuation gap is key to major long-term profits. This experience comprises several years as a senior investment bank trader and decades as a private investor.
I have found the best way to do this is through a discounted cash flow analysis. This pinpoints where any share should be priced, based on cash flow forecasts for the underlying business.
The DCF in Bunzl’s case shows its shares are 28% undervalued at their current £25.93 price.
Therefore, their fair value is £36.01.
Positively as well here is the resumption of a £200m share buyback that was paused in April. These tend to support share price gains.
Will I buy it?
Broadly speaking, my overall portfolio is split into growth stocks and dividend stocks.
The former I always aim to buy at a 40%+ price discount to fair value. This is because over time fundamentally good assets tend to converge to their fair value.
Consequently, the further they are away from that in the first place, the more profit I make on the share price gain. Bunzl’s 28% discount is therefore not sufficient for me to consider it for inclusion in my growth stocks.
For the latter, I always look for a dividend yield of at least 7% at time of purchase. This is because I can get 4.7% from the ‘risk-free rate’ (10-year UK government bond yield) and shares are not risk free.
Bunzl’s current dividend yield is 2.9% and is only forecast to rise to 3.2% by end-2027 – so nowhere near what I want.
Consequently, Bunzl is not worth me taking seriously as either a growth or dividend stock buy right now.
