Barclays has raised its target price and estimates for Bunzl PLC (LON:BNZL) in the wake of the international distribution and services group’s latest trading update, released on Thursday.
The bank hiked its target for the FTSE 100-listed stock by 4% to 2,600p, up from 2.500p previously, with its shares currently trading at 2,435p, down 0.1% on yesterday’s close.
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In a note to clients, Barclays analysts said: “Bunzl continued to trade well in the final quarter, delivering c2.5% organic growth despite a tough comparative and being on track to hit market expectations for trading profit.”
They added: “The group is continuing to deal well with cost inflation, with the trading update defying some expectations by not flagging any incremental pressure from inflation in US wage and distribution costs.”
“Looking into 2019, we think a combination of price increases, a reorganisation in the US, acquisition synergies and input cost pass-through should mean the group continues to offset inflation,” the analysts said.
They have increased their underlying earnings (EBITDA) estimates for Bunzl by around 2% for both 2019 and 2020 to £644mln and £664mln, respectively, with acquisitions and favourable currency movement
both adding about 1%.
The analysts said: “We are forecasting organic growth of 2.4%, which we view as good given the difficult comparator.
“We expect margins to decline by 6bps to 6.7% next year (unchanged) due to US cost inflation and transactional currency exposure in the UK.”
They noted that Bunzl shares trade on a price/earnings of 18x 2019 estimates with a 2.2% dividend yield and a 5% free cash flow yield.
Repeating an ‘overweight’ rating on the stock, the analysts concluded: “We see this as attractive for dependable earnings growth regardless of macroeconomic conditions.”