Investment Column: Bunzl's latest purchases will fuel growth

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The Independent Online


Our view: buy

Share price: 760p (+4p)

Many companies suffer a loss of momentum when they go on an acquisition spree. But this has not happened with Bunzl, the UK's biggest vending machine supplier, which yesterday delivered full-year results ahead of City expectations.

Moreover, the company, which also supplies food packaging and catering equipment, vowed to keep up the pace of its shopping binge this year after it acquired nine businesses for an outlay of £126m last year.

Responding to the update, James Cooke, an analyst at Panmure Gordon, said: "Given the success of the integration of past acquisitions, this should be good news."

Last year, Bunzl's acquisition strategy increased its presence in the key markets of the US, Denmark, Benelux, Spain and Brazil, while substantially beefing up its existing operations in Switzerland and entering Israel.

As Charles Stanley highlighted, the acquisition strategy has delivered about 66 per cent of Bunzl's growth over the past 10 years. That said, a robust performance across different geographies and business segments was the real story behind the group posting a 7 per cent rise in pre-tax profits to £276.2m for the 12 months to 31 December.

Following a "very challenging" 2009 in the UK and Ireland, Bunzl said that cutting costs had helped it to deliver improved operating profits, which were up 3 per cent to £59.5m, despite continuing pressure on its sales, which slipped by 5 per cent to £1.01bn.

Operating profits also rose by single-digit figures in North America and continental Europe, but the star performer was its rest of the world division, which boasted a 19 per cent rise in profits to £23.8m. A further tonic for investors is that Bunzl recommended a 9 per cent rise in its final dividend to 16.2p. While we don't think Bunzl's shares are going to set the world alight over the next year, they trade on a forward earnings multiple of 12.5, which is a discount to a number of its rivals. With more corporate action on the agenda, we think it looks set for steady growth, so buy.


Our view: buy

Share price: 124.8p (+4.8p)

When looking at Hays, investors would do well to put aside worries about the domestic jobs market.

As the recruiter made very clear right at the start of its half-yearly results statement last night, more than 60 per cent of net fees spring from beyond these shores, up from 54 per cent in 2009.

The Asia-Pacific business is doing well, delivering 38 per cent net growth in fees. In Europe, Hays booked a strong performance in Germany, where net fees grew at a similar pace. Although not as exciting, the picture in the UK was stable.

Taken together, the results told of a business that is deftly navigating the challenges in its more problematic markets and capitalising on the opportunities in the stronger ones. But should you buy? Some City scribblers appear spooked by the valuation, which, at about 20 times forward earnings, is far from cheap. That said, Hays boasts an attractive yield of 4.6 per cent and lags behind Michael Page, which is on more than 23 times forward earnings.

Ordinarily, such figures would make us wait and watch but the latest results deserve applause, so buy.


Our view: hold

Share price: 623.5p (-15p)

The squeeze on construction markets in the developed world made 2010 among the toughest in Keller's history. And while last night's results remained subdued, the ground engineering specialist's chief executive, Justin Atkinson, said things such as Keller's strong balance sheet will "underpin... [the] delivery of sustained long-term growth in the future".

Happily for investors, Australia and other developing markets proved particularly pleasing for management, while Western Europe and the US have stabilised. Yet the group's revenues rose only slightly and adjusted pre-tax profits were at the lower end of the range at £39.5m. This marked a fall of almost half since 2009, though that was primarily because of a goodwill impairment.

A mixed bag, then. We agree with Mr Atkinson about Keller's long-term prospects, particularly in light of its efforts to cut debt, but we are not sure that the time is yet right to wade in. We would wait until the markets show firmer signs of recovery. Hold.