CFRA has maintained its Hold rating on Bunzl (OTC:BZLFY) Plc (BNZL: LN) (OTC: BZLFY), a multinational distribution and outsourcing company, while adjusting the price target to £35.00 from the previous £33.00.
The revised target is based on a consistent 2024 enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) multiple of 11.4 times, aligning with the three-year average.
The firm's decision follows a slight revenue dip of 3.3% year-over-year, attributed to a 5.1% decrease in North American sales, which has been impacted by deflation and volume reductions. Despite the revenue decline, Bunzl's management has successfully improved its adjusted operating margin by 60 basis points to 8.0%, reflecting a strategic emphasis on margin enhancement.
Bunzl also declared an interim dividend of £0.201, marking a 10.4% increase from the previous year. However, the company's financial leverage has seen a minor increase, with net debt to EBITDA rising to 1.5 times from 1.3 times at the end of the first half of 2023.
In response to the company's performance and outlook, CFRA has raised its earnings per share (EPS) estimates for Bunzl. The 2024 EPS forecast has been increased to £1.59 from £1.50, and the 2025 EPS projection has been lifted to £1.68 from £1.57.
Despite these adjustments, the firm's rating remains at Hold, suggesting that while operating margins have improved, there is a perceived limit to further enhancement without addressing the short-term sales challenges in North America, which constitutes 57% of the group's sales in the first half of 2024.
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