One of only three FTSE 350 companies in the diary for the coming week, Bunzl PLC (LSE:BNZL) issued a reassuring update a few weeks ago but has seen the investor confidence drain away in recent days, not helped by sentiment being dented by reports the UK is close to a ban on single use plastics.
The company's business is heavily reliant on single-use and disposable items in packaging, hygiene, personal protection equipment, cleaning and other products for food, retail, safety, healthcare and other sectors.
For example, it provides food packaging, films and labels to supermarkets and convenience stores, much of which is plastic, along with disposable tableware for hotels, restaurants and caterers, as well 'consumables' (ie throw-away) such as gloves, masks, swabs and gowns for the healthcare sector. It does have a large and growing recyclable cardboard range.
With UK environment secretary Thérèse Coffey reported to be close to unveiling plans to phase out the items, Bunzl's website has pledged to “work with our customers and suppliers to lead the industry towards a sustainable approach to single-use plastics.”
Customers currently seem very happy with its products, with the company reporting in October that “very good revenue growth” was expected this year, up from the “moderate” growth predicted earlier in the year.
The blue-chip group also said it expects group operating margin in 2022 to be higher than historical levels and only slightly lower than the Covid-boosted figure achieved in 2021.
With Bunzl’s shares have oscillated in a channel between 2,700p and 3,100 this year, which is still not far from their all-time highs, AJ Bell analyst Danni Hewson said this “may be a reflection of the strength of Bunzl’s business model”.
Hewson said Bunzl’s is "hyper aware of the ideological shift away from single use items and has made big strides in its compostable and recyclable lines even founding its own nationwide cup recycling scheme.
"There are additional costs involved but without making these kind of changes many of their products risk being obsolete.
"That said, there is still a huge market for on-the-go kit and with more and more people returning to offices and workplaces there are plenty of opportunities for the business if it gets its messaging and its pricing right."
For the trading update, after looking at the headline sales growth numbers, the City will also look at the sale mix and effects of inflation.
Bunzl said inflation was a key driver of sales at the last update, with strong revenue increases in Europe, the UK and USA, where negotiations with a key customer should be resolved now.
On average, City analysts currently forecast profits for the full year will increase 20% to around £689mln, with a 3% advance to £706mln pencilled in for 2023.
“Bunzl is likely to leave any comment upon dividends until the full-year results, probably in February, but do watch out for an update on acquisitions,” Hewson said, noting that the highly acquisitive company spent £508mln on 14 purchases in 2021 and has already struck seven more in 2022.