Following strong half-year numbers from Bunzl PLC (LSE:BNZL), Shore Capital has upgraded its forecasts for earnings and dividends for this year and next.
"We foresee the potential for more to come," the broker said, highlighting the FTSE 100 group's attractions as "highly resilient business to economic cycles" through its business model as a distributor of capital efficiency to companies across a wide spectrum of industries.
Analyst Robin Speakman said cash generation "remains to the fore", which will allow the group to fund organic and acquisitive growth "at a time when its services to clients remain high on the agenda".
Performance in the second half of the year is set to be driven by the confirmation of a higher operating margin than previously expected, the analyst said, due to a good operational performance and positive leverage, helped by inflation, but also product mix.
"Inflation tailwinds are set to lap prior comps from this point and so weaken, but FX tailwinds persist to reported results. Acquisitions continue (with material funding headroom noted), future announcements to be wound into our forecasts delivering additional upgrade potential."
On valuation, Speakman said prospects "continue to look assured", with the group's strong management culture, the proven resilience of its business model to economic cycles, positive cash generation credentials and ability to source, transact and integrate acquisitions.
Bunzl shares trade at 15 times 2023 earnings per share or an EV/EBITDA ratio of 9.8 times.
Based on the upgraded forecasts, Shore Capital now sees fair value at 3,500p, up from 3,450p.
"A premium rating is deserved, in our opinion," said the analyst, reiterating a 'buy' rating.