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The pandemic’s heroes have been the organisations that kept delivering. Nurses, doctors and teachers deserve plenty of plaudits, but don’t forget White Van Man, the grocery chains and postal workers who ensured homes and businesses were stocked with essential supplies when the nation was locked down.
It was the test of supply chain resilience that had been expected when Brexit finally took effect.
Other than the worrying episodes when PPE ran short and we saw skirmishes over lavatory rolls in the supermarket aisles, providers passed. Included in their ranks should be Bunzl, which remains a low-profile operator even as it scales the FTSE 100 ranks.
The company, which takes its name from its founder, a Slovakian haberdasher, delivers dullish everyday items that during the pandemic were re-evaluated as essentials: surgical gloves, first-aid kits, cleaning materials and disposable cutlery.
It succeeded in keeping up with demand, disclosing last month that first-half underlying sales rose by 2pc, or 5pc if the impact of acquisitions was added. In addition, profit margins will be better than at the same stage last year.
Bunzl has benefited from the great spread of markets in which it operates. While fewer retailers needed items such as till rolls and carrier bags, and hotels and restaurants fell quiet, in the higher-margin segments of healthcare, cleaning and safety, business has been brisk.
The company helped clients build up stock levels of hard-to-locate protective kit through its Shanghai buying base, such as by sourcing masks and verifying their quality.
For Frank van Zanten, the chief executive, it stands to be a better year than 2019, when the top line advanced by only 0.3pc on an underlying basis and two of Bunzl’s four geographic regions contracted.
However, much depends on a revival in food service and retail, which together account for 35pc of sales, because stocking up in other sectors is unlikely to be repeated.
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The North American region is Bunzl’s largest, contributing more than half of operating profits. It has been scaling up fast but at a cost to margins, which haven’t grown for five years. Last year, it suffered when a large grocery customer rescoped a contract, which led to lower sales.
Strength in Europe means that most analysts appear unconcerned. Goldman Sachs forecasts that earnings per share this year will come in 3pc below 2019 levels, but 2021 will rally to be 5pc above the same mark.
The 26-year track record of dividend growth ended when Bunzl prudently cancelled the final 2019 payout. But the company’s balance sheet strength suggests investors will not be waiting long for the divi’s return, especially after it said the employee-related government support package would be repaid and the settlement of tax deferrals brought forward where possible. Expect some good news at half-year results on Aug 24.
By cutting spending and debt repayment, analysts at Shore Capital, the broker, expect Bunzl to have an extra £207m of cash by the year end.
The group’s ratio of earnings to debt was already below range coming into 2020. That bodes well for a swift return to the acquisition trail that is so familiar to Bunzl. Bolt-on deals have contributed three quarters of growth over the past 15 years and four buys were disclosed in 2020 before it paused activity in April.
If one upshot of the coronavirus crisis is that small firms drop their asking price, expect Bunzl to accelerate acquisitions as it did in the years after the 2009 slump. Many of its targets are under the radar of private equity buyers.
The shares, tipped here in May 2019, are back in positive territory, having rallied by 9pc since a trading update last month. Changing hands at 18 times forecast earnings for 2021, its performance in the past few months should reward Bunzl with more customer and investor loyalty.
Questor says: buy
Ticker: BNZL
Share price at close: £21.98
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