Investment Column: Bunzl shares offer investors safety, but not as much as they did

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The Independent Online


Our view: Hold for now

Share price: 544p (+6p)

Bunzl issued what can only be described as an impressive full-year results statement yesterday. The numbers are stellar, with a foreign-exchange aided 13 per cent hike in pre-tax profits. The group told the market acquisitions made last year were bedding down nicely and, best of all, investors will enjoy a 10 per cent jump in the dividend. If nothing else, this should add a little confidence to buyers that the group sees the outlook as rosy.

Indeed, the distribution and outsourcing group should be a nailed-on buy for punters. Specialising in areas such as medical supplies, groceries and food service, which make up 75 per cent of the company’s activities, Bunzl is a defensive stock.

There is a but, however. The group reckons that, notwithstanding its defensive markets, 2009 will be challenging. Worryingly for residents of the UK, it reported that its operations in the UK and Ireland are already feeling the bite of the recession and that it expects things to get worse this year.

The experts at its house broker Cazenove point out that Bunzl’s performance is “in-line”, but that “in our view Bunzl’s end market split is now somewhat less defensive than in previous downturns, making it somewhat less defensive than market tribal memories may believe”. While those at Killik Capital argue that: “The strong financial position will allow the company to take advantage of appropriate opportunities as they arise … trading on a 2009 price-earnings of 10 times, the shares represent reasonable value.”

We do like Bunzl. The northerly travelling dividend is certainly a big pull, and while the rate of acquisitions, which contribute heavily to growth, will slow this year, the group does intend to make additions.

We are not convinced, however, that the group is quite as defensive as some like to suggest. Hold for now.


Our view: Buy

Share price: 390p (-23p)

It is perhaps the understatement of the day to say that investors have had a good last three months holding Fresnillo shares. The precious metal miner’s stock is up an almost unbelievable 314 per cent in the last quarter, as gold and silver prices have risen on the back of investors seeking safety.

There was not quite as much hullabaloo as the FTSE 250-listed Mexican company announced its first set of full-year numbers yesterday, with pre-tax profits down 11 per cent, sending the shares down by 5.6 per cent.

Despite the share price surge, which watchers at Citigroup say is a “deserved re-rating,” the group’s stock is still undervalued, say those at Liberum Capital, who argue that: “Fresnillo is currently trading on a p/e of about 21 times, rated below some of the major precious plays [Hochschild and Randgold, both at 47 times], which seems anomalous”.

That should not be seen as an automatic green light for buyers, however. The outlook for miners of any ilk must be considered at best changeable given the volatility in commodity prices over the past few months.

That said, Fresnillo is one of our favourite miners and has reacted best since the onset of silver’s price recovery in the last few months. It is an undervalued stock and, being in gold and silver, it is a safer punt than most. Buy.


Our view: Buy

Share price: 222p (+1p)

Investing in equities is always a punt, especially so in these yo-yo markets. Keith Neilson, the chief executive of Craneware, the US healthcare market software provider, reckons however, that if it is safety you are after, a bet on his company is as safe as anything else you can put your money in.

The evidence to date suggests he might be right: the shares are up nearly 50 per cent in the past year, and yesterday the company issued an impressive set of interim numbers, with first-half sales up 69 per cent on the same period last year.

All this success may spell disappointment for new buyers, however. On yesterday’s cracking numbers, the stock barely inched up, suggesting that a lot of the good news is already priced in. Watchers at Panmure Gordon back up this point by explaining that, on a current year p/e of 21.6 times, the shares trade on an “expensive multiple and still look expensive on an earnings basis”.

Expensive? Not a bit of it, says Mr Neilson, who argues that with $20m (£13.8m) in net cash already on the balance sheet and new contracts worth $51m in revenue terms yet to hit the profit and loss account, the group has a bigger cash pile than its market capitalisation.

A fair point, and as such we are prepared to give Craneware the benefit of the doubt. Buy the shares, but be aware that the upside may be slowing. Buy.