City talk: Bunzl outstrips rivals and ties up profits

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The Independent Online
BUNZL, the paper to packaging group, is a star in a disastrously blighted sector. It shows in the relative performance of its shares. Against its peers, it has stormed ahead, showing an average gain of 43 per cent over the last year. Yet translated into a comparison with the market, it has not done so well - underperforming by 6.7 per cent. Not that that is a bad performance in absolute terms - the shares have done well over the last year. One of the concerns that dogs the sector and has cast a cloud over Bunzl is its exposure to currencies and the vagaries of volatile raw material prices. True enough, managing the interplay between exchange rates and paper and pulp prices, and where they are sourced across Europe, is a headache for any management team. But look to Bunzl's track record, and it seems to have a firm grip on the situation.

Margins have consistently improved, whatever the currency swings and roundabouts. Stockbroker ABN Amro says the market also overplays doubts about Bunzl's ability to generate organic growth. In fact, compound annual growth has been 6 per cent for the past five years after stripping out acquisitions net of disposals. The upshot is a grossly undervalued business - by as much as 28 per cent. It should be viewed as a sensible, long- term growth prospect, with minimal risks.

On Friday, the market barely blinked as tiddler Lionheart announced another small acquisition. It is paying pounds 700,000 to buy Gelson, a maker of shower curtains and rails from McKechnie. For the bathroom products company - which is already a supplier of loo roll holders to the likes of Marks and Spencer, Homebase and Kingfisher, the new addition fits nicely.

House broker Collins Stewart is upgrading its current year forecast to pounds 1.7m in pre-tax profits, from pounds 1.5m. That leaves the shares trading on the hardly overtaxing rating of seven times for 1998.

Still among the small fry, Ennstone, the quarrying business - once known as Albrighton - has just posted its first operating profit since 1994. Last week, it revealed it had made pounds 229,000 on sales of pounds 14.2m - a far cry from the pounds 4.13m of sales in 1996, which produced a pounds 3.2m loss. The increase in sales follows its purchase of Bruntcliffe for pounds 26m in August. The company has signed up Peel, Hunt as its new stockbroker, which reckons the company should make pounds 2.25m pre-tax in the current year. The shares look an interesting bet.

Another UK minerals concern, Watts, Blake, Bearne, will announce finals on Tuesday, when the market is expecting a figure of up to pounds 10.9m. However, at least one informed analyst believes the figure will outstrip this projection. WBB posted pounds 5.5m at the half-way stage. Privately owned Belgian group Sibelco holds a 52 per cent stake and may just be tempted to bid again for the business.

Stockbrokers are keen on the tie-up announced between bio-tech hopeful Chiroscience and drugs giant Zeneca. Kleinwort Benson says that Chiroscience's shares should hit 750p by the end of the year, from 331p. Zeneca has invested pounds 15m in the business, and has announced a licensing deal for Chirocaine, which should generate revenues of pounds 200m for Chiroscience.

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