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Bunzl not the defensive stock that you're looking for, says UBS

Analysts reckon the support services sector will not only be hit in the fallout from the coronavirus pandemic but also will see a muted rebound next year

Bunzl PLC -

Bunzl PLC (LON:BNZL) is not quite the defensive stock that investors believe it is, analysts at UBS told their clients, slapping a ‘sell’ recommendation on the shares.

The support services sector will not only be hit in the fallout from the coronavirus pandemic but also will see a muted rebound next year, the analysts said.

Bunzl, the FTSE 100-listed distributor, was downgraded from its previous ‘neutral’ rating as the share price target was slashed to 1,500p from 2,150p on the back of a 29% cut to earnings per share this year and 15% for the next.

“Our analysis suggests that Bunzl will not prove as defensive as the market expects over the next two years, due to a combination of high end-market exposure in the weakest parts of the economy and growing pressure on volumes from sustainability initiatives,” the analysts said in a note.

Looking around the sector, operators will be “significantly impacted as customers reduce activity in the Covid-19 fallout” with UBS forecasts pointing to an average decline of 11% for organic growth for the whole of 2020.

But as balance sheets are largely healthy and the sector has uncharacteristically underperformed in the sell-off, the analysts said they “believe investors can soon turn to 2021 recovery prospects”.

However, the only two UK names in the “most preferred” list were Electrocomponents PLC (LON:ECM) and Experian PLC (LON:EXPN), while other ‘buy’-rated stocks included Serco Group PLC (LON:SRP), DCC PLC (LON:DCC) and Homeserve (LON:HSV).

Bunzl and Intertek Group PLC (LON:ITRK) were added to the “least preferred” list.

G4S PLC (LON:GFS) was downgraded from ‘buy’ to ‘neutral’, joining Hays (LON:HAS), Capita PLC (LON:CPI) and PageGroup PLC (LON:PAGE), which are all stocks where the analysts expect a soft rebound in 2021, with earnings forecast to remain around 40% below their 2019 levels.

Quick facts: Bunzl PLC

Price: 2197 GBX

Market: LSE
Market Cap: £7.4 billion

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