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"Sell Bunzl" says Berenberg as slowdown becomes entrenched

Elsewhere, Peel Hunt analysts downgraded Ashtead, Equiniti and Serco

Bunzl PLC -

Bunzl PLC’s (LON:BNZL) recent growth slowdown is even worse than it looks, suggested analysts at Berenberg as they slapped a ‘sell’ recommendation on the shares.

After the distributor, one of the FTSE 100’s handful of beautifully-boring business services companies, reported a deterioration in organic growth and margins last month, blamed on weak global economic conditions.

“We think Bunzl’s recent deterioration in organic growth and margins could presage much more entrenched long-term structural underperformance,” Berenberg’s analysts told clients in note on Monday.

With Bunzl growing at sub-GDP rates last year it could be viewed as a one-off, but the analysts are not so confident, reckoning instead that it “more likely heralds a new chapter of disintermediation, price transparency and underlying margin attrition”.

Seeing “cracks” appearing in the operating model, the analysts have taken a new approach to valuing Bunzl’s shares, driving a big cut in the share price target to 1,650p from 2,350p.

Mixed report for business services sector

This was part of a wider note from the bank on the business services sector, where, the analysts examined company-specific investment cycles rather than focusing exclusively on the supply side of each industry, “in order to determine who is positioned competitively” and who can therefore generate either near-term earnings or cash flow momentum, or deliver excess returns for a longer period than the market is pricing.

This did not result in any ratings changes for other London-listed companies in the sector.

However, DCC PLC (LON:DCC) price target was trimmed to 7,500p from 8,450p due to lower forecast earnings estimates driven by a softer performance in the UK Technology business.

Elsewhere, price targets were lifted, with Intertek PLC’s (LON:ITRK) up to 5,300p from 5,050p; Aggreko PLC (LON:AGK) moved to 650p from 600p; and Ashtead Group PLC (LON:AHT) nudged to 2,250p from 2,150p.

Peel Hunt downgrades Ashtead, Equiniti and Serco

Ashtead was downgraded by analysts at Peel Hunt as part of a wide-ranging note on the services sector, cut to ‘hold’ from ‘buy’, along with Equiniti Group PLC (LON:EQN) and Serco Group PLC (LON:SRP).

Top picks for the Peel Hunt team included ‘conviction buys’ Balfour Beatty (LON:BBY), DCC, Homeserve Plc (LON:HSV), Morgan Sindall PLC (LON:MGNS) and Restore Plc (LON:RST), with preferred small caps being Galliford Try PLC (LON:GFRD), Inspired Energy plc (LON:INSE) and NWF Group plc (LON:NWF).

Quick facts: Bunzl PLC

Price: 1923 GBX

LSE:BNZL
Market: LSE
Market Cap: £6.48 billion
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