Investment Column: Bunzl has a rich history, buy into its future

Click to follow
The Independent Online


Our view: Buy

Share price: 652p (+16p)

Bunzl is a hard company to pin down as it has sold everything from cigarette paper to adhesive tape in its rich and diverse history. Now it specialises in providing retailers with products they need in their business, and yesterday pleased the market once more with a solid trading statement.

The group is a relative veteran of the London Stock Exchange, listing over 50 years ago, but actually traces its roots back to Bratislava in the mid-19th century. Part of the Bunzl family moved to England in 1938 to avoid the turmoil in Eastern Europe, and expanded their company through acquisitions and diversification up until the new millennium.

In the past decade, however, the company has streamlined to focus on distribution and outsourcing. Today it delivers non-food products for companies such as Costa Coffee, providing it with cups, spoons, and sanitary products. It counts large businesses from the grocery, cleaning and safety, retailing and healthcare industries among clients.

Yesterday's third-quarter trading statement showed the company picking up from where the strong half-year announcement in August left off. The group brings in 80 per cent of its revenues from abroad, and the weakness of the pound – as well as a better performance in continental Europe – helped to lift revenues 8 per cent. Margins were also up from cost-cutting.

The one fly in the ointment is the rate of acquisitions slowing. Management admitted looking at targets, but lament the difference in price expectations with potential vendors. Analysts believe deals could prove a much-needed opportunity to grow products and locations. Still,the group has a strong balance sheet, as well as good cash flow. Operating in a defensive sector, the shares are valued at a hardly taxing 12.4 times this year's forecast earnings, with a yield of 3.5 per cent. It has a rich history, and should prove to have a lucrative future. That being the case, we suggest buying into it.

Gem Diamonds

Our view: Avoid

Share price: 255p (+7.3p)

Diamond miners like Gem endured a brutal recession. Spending money on sparkly things wasn't the done thing with the bailiffs banging on the door. The shares reacted by falling off a cliff, and the company had to go cap-in-hand to shareholders as losses mounted and debt soared.

Now that the cash call has been completed, and the company is in the happy situation of being debt-free, how do things look? Well, according to the analysts at RBC Capital Markets, a lot better than they did. Its research says that while prices are hardly diamond strength, there has been some hardening. And a recovering economy could further help. What's more, the sector has yet to enjoy the sort of uplift other commodity producers have enjoyed.

So time to buy? Not just yet. The company appears to be (just) profitable, but the numbers in this half will be flattered by the sale of some product held over from 2008. Gem is also notably cautious about the market, particularly in the US in the run-up to Christmas. Perhaps with good reason. The global economy may be recovering and demand from China and India is still there. But ostentation is out at the moment. It doesn't do to be flashing rocks when people are still losing their homes, at least not in the US. And the shares have recovered by some way from their nadir. We'd like more evidence of recovery before we'd be willing to take the risk, given that there are more solid "early recovery" plays out there and (real) fears of a "double dip" slowdown. So sit back and watch for the moment.


Our view: Buy

Share price: 3p (-0.38p)

It may be a blindingly obvious thing to say, but investors should always buy into companies that make them money, not take it away.

Over the last 12 months Cashbox has taken punters' money in more ways than one: not only do the vast majority of its cash machines charge you for getting your own money, a 44.9 per cent drop in the stock has also cost those that own the shares.

Yesterday's share price fall hardly helped matters.

But, in fact, it is not all that bad. The group issued its first-quarter results yesterday saying that revenues were up 36 per cent and that it broke even on an Ebitda basis, helped by acquisitions and stripping out of much of the middle management.

Cashbox is a punt on the hope that the chief executive, Ciaran Morton, can execute his plan of further deals and putting the cash machines in increasingly attractive locations. But perhaps it isn't as much of a lottery as putting your card in an ATM, closing your eyes and hoping you hit the right four-number PIN combination.

It may be a penny stock and is therefore always going to be risky, but the numbers are improving, and this should filter through to the share price, which is already in the bargain basement. So take a punt and buy.