Bunzl PLC (LON:BNZL) could only deliver flat underlying earnings for the first half of the year, though the business supplies distribution giant received a sizeable benefit from the weak pound.
Having already revealed two months ago that underlying sales growth was slowing due to the softening global economy, the FTSE 100 group repeated its assurance that full-year results remained unchanged.
The dividend was lifted 2% to 15.5p, but this compared to around 9% average dividend growth over the previous five years.
Profits little moved
Profit before tax of £200.5mln in the six months to 30 June was up 1.6% on the same period last year, although adjusted operating profits at constant currency rates were up only 0.3%.
While statutory earnings per share climbed 3.1% to 46.5p, adjusted earnings per share were up 2% to 60.4p and if currency swings are ignored, were unchanged from a year ago.
Though operating margin has widened 12 basis points to 6.7% on a reported basis it was six basis points narrower at constant exchange rates due to softening outside of Europe and North America.
Second half outlook
Squeezed conditions in the Rest of the World segment are expected to continue in the second half, while North America sales are expected to swing to negative growth.
Continental Europe is expected to grow for the year as a whole, while the UK & Ireland remain under pressure amid Brexit uncertainty.
“Against the background of slowing macroeconomic and market conditions across the countries and sectors in which we operate, Bunzl has produced a resilient operating performance,” said chief executive Frank van Zanten.
He said the board’s expectations for the full year remain unchanged from the last two trading updates, while acquisition talks are taking place with “a number” of targets with the expectation that they will result in deals completed in the second half.
Analysts
While Bunzl has been seen as a defensive investment, Russ Mould, investment director at AJ Bell, said the slowdown in the global economy "has made life much harder for Bunzl and proved that it is perhaps not as defensive as some people think".
The number of acquisitions is also lower than normal, "either because the company is being cautious or business sellers want a higher price than Bunzl is prepared to pay", while the slower dividend growth is "perhaps the ultimate sign of Bunzl being very cautious".
Mould added: “Dividends are a good way to gauge how management are thinking; high payment levels would suggest confidence in future trading and financial strength; lower payment levels would suggest caution about near-term trading.
“Bunzl has a good track record of growing its dividend every year and that has become one of its key sales pitches to investors. Management would do everything they can to protect that track record. A 2% dividend increase from Bunzl is therefore a token payment to sustain its dividend growth status, but any other firm also nervous about future trading may not have raised the shareholder payment at all.”
Broker Shore Capital agreed that the pace of acquisitions has remained subdued.
"Committed spend in the year to date has reached just £98m, but with an active pipeline of potential transactions to grow Bunzl’s footprint confirmed. We expect activity to begin to step up in due course.
"The result of low acquisition spend is a strengthening balance sheet with cash conversion remaining high at 96% - to become evident through H2, dependent upon acquisition activity."
Bunzl shares were down 0.25% to 2,028p on Tuesday morning.