Investment column: Bunzl racks up paper profits

THE PAPER and packaging sector has not been the investors' favourite in the past year - and with good reason. The Asian crisis has hit demand and prices, while UK companies have struggled with the added disadvantage of the strong pound.

Bunzl has not been immune to these factors. Although the group does not make pulp or basic plastics, they are used heavily in its products. And falling input prices have forced Bunzl to cut its own prices. In the first half of the year, the group reckons that the combined effects of the strong pound and price deflation wiped more than 6 per cent off revenues.

As a result, Bunzl did well to keep underlying revenues and profits more or less flat. Meanwhile, the benefits of recent acquisitions - Bunzl has spent pounds 165m in the past 12 months - helped boost operating profits by 16 per cent to pounds 66.7m.

In this climate the chairman, Anthony Habgood, is reluctant to make predictions. But pulp and plastic prices should stabilise, so Bunzl will no longer have to run to stand still. Meanwhile, with one acquisition still to be fully integrated and plenty of scope for bolt-on deals - profits covered its interest bill 15 times in the first half - Bunzl should keep profits rising.

The shares - which shed 8p to 228.5p yesterday amid the general market shakeout - now stand on a multiple of just 12 times expected full-year earnings.

Bunzl will never be a go-go stock, but in an uncertain market investors will appreciate its solid fundamentals.