Bunzl PLC

Bunzl PLC (BNZL) is a London, United Kingdom-headquartered specialist multinational distribution company, which is engaged in supporting businesses by distributing non-food consumable products to various markets in 31 countries. The group offers customised solutions to B2B customers to help increase efficiency and improve the competitiveness of its customers. The operations of the group are differentiated in four operating segments, namely North America, Continental Europe, UK & Ireland, and Rest of the World. The company is a constituent of the FTSE 100 index.

Key Financial Highlights (H1 FY 2019, in £m)
 
(Source: Company Filings)

Reflecting the benefit of acquisitions and underlying organic growth of 0.8%, revenue rose to £4,528.4 million (2018 H1: £4,343.7 million), up by 4.3% at actual exchange rates and 1.2% at constant exchange rates. On an IAS 16 basis, operating profit was £239.0 million and adjusted operating profit was £302.7 million. On an IAS 17 basis, operating profit was £228.1 million, which indicated an increase of 5.7% at constant exchange rates (up by 8.2% at actual exchange rates), while adjusted operating profit increased to £291.8 million, an increase of 0.3% at constant exchange rates (up by 2.4% at actual exchange rates). On an IAS 16 basis, profit before income tax was £200.5 million and adjusted profit before income tax was £264.2 million. Due to the growth in adjusted operating profit and the reduction in net finance expense, adjusted profit before income tax rose by 0.8% at constant exchange rates (up by 2.7% at actual exchange rates) on an IAS 17 basis to £264.9 million (2018 H1: £257.9 million), while profit before income tax (IAS 17) was reported at £201.2 million (2018 H1: £197.3 million), up by 1.97% at actual exchange rates). On an IAS 17 basis, profit after tax increased by 2.3% at constant exchange rates (up 4.4% at actual exchange rates) to £155.7 million, while adjusted profit after tax was £201.9 million (2018 H1: £196.4 million), up by 0.8% at constant exchange rates (up by 2.8% at actual exchange rates). Keeping in line with the growth in adjusted earnings per share, interim dividend was increased by 2.0% to 15.5p from 15.2p in H1 FY2018.

Valuation Methodology
Method:  Price/Earnings Approach (NTM)

*Peers of the company are Ashtead Group PLC, Aggreko PLC, DCC PLC and Intertek Group PLC

Share Price Commentary

Daily Chart as at 27-August-19, before the market closed (Source: Thomson Reuters)
 
On 27 August 2019, at the time of writing (before the market closed, GMT 10:45 am), BNZL shares were trading at GBX 2,025.00, down by 0.44 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 2,554.60/GBX 1,966.50. The company's stock beta was 0.75, reflecting less volatility as compared to the benchmark index. Total outstanding market capitalisation was around £6.88 billion, with a dividend yield of 2.47%.

Conclusion
Due to continued slowdown in industrial and construction sectors, especially in hospitality and healthcare, revenue during the period in the UK and Ireland declined, with a significant reduction in the adjusted operating profits. However, despite an increase in the operating costs, operating margin remained resilient, and the company reported good underlying organic revenue growth in continental Europe. As the company generates 88% of the revenue from outside the UK, it is well insulated against potential disruptions after Brexit and stands to gain from a depreciation of the Sterling. According to some market experts, foodservice market in the UK has been driven by increasing numbers of transactions, and Bunzl is poised to benefit from the positive outlook for the foodservice industry in the UK as it provides food packaging, disposable tableware and catering equipment.

Based on the above rationale, and supported by valuation undertaken using the above method, we have given a "HOLD" recommendation at the closing price of GBX 2,033 (as on 23 August 2019) based on 16.47x NTM Price/Earnings (approx.) on FY19E earnings per share(approx.).
 

The Renewables Infrastructure Group Limited

The Renewables Infrastructure Group Limited (TRIG) is an investment company which focuses on a diversified portfolio of renewable energy infrastructure assets and is advised on a day-to-day basis by InfraRed Capital Partners Limited as the investment manager. The projects of the group comprise of wind farms, solar projects and battery storage and have invested in over 70 assets in the UK, France, Ireland, Sweden and Germany. Renewable Energy Systems Limited is the operations manager of the group, and it seeks to provide investors with long-term, stable dividend, with a focus on operating projects.

Recent Development
The company on 28 June 2019 announced the acquisition of two onshore wind investments in France - a 34.6% equity interest and all of the shareholder loans in Fujin SAS and a 100% interest in the Epine windfarm. The latest acquisitions increased the proportion of the portfolio in France from 10% to 13% and brought the net generating capacity of the company to 1,509MW. Following the recent fundraise, the cash resources of the group have been used to finance both the investments.

Key Financial Highlights (H1 FY 2019, in £m)

(Source: Company Filings)

Net operating income during the period rose from £55.4 million in the prior year H1 FY18 to £133.0 million in H1 FY19on an expanded basis and £129.0 million on a statutory basis. Reflecting valuation enhancements, efficient portfolio management, reductions to discount rates and strong valuation growth in the period, profit before tax for the six months to 30 June 2019 was £122.2 million, up from £47.3 million reported last year. Compared to 4.8p for the six months to 30 June 2018, earnings per share was 9.3p during the period. As fixed costs of the company are being spread over a larger capital base due to the benefit of growth in the net assets, Ongoing Charges Percentage for the period was 0.98% (H1 2018: 1.19%). As a result of the investments made in the six months to 30 June 2019, portfolio value grew by £352.2 million in the six months to £1,620.9 million and Net Asset Value per share as at 30 June 2019 was 115.0p versus 108.9p at 31 December 2018.

Share Price Commentary

Daily Chart as at 27-August-19, before the market closed (Source: Thomson Reuters)
 
On 27 August 2019, at the time of writing (before the market closed, GMT 9:00 am), TRIG shares were trading at GBX 128.40, up by 0.32 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 133.60/GBX 109.08. The company's stock beta was 0.26, reflecting less volatility as compared to the benchmark index. Total outstanding market capitalisation was around £1.86 billion, with a dividend yield of 5.13%.

Conclusion
The company’s business operations can be impacted due to the changes to regulation and might affect financial performance and adverse changes in taxation can be implemented by a future Labour government in the UK. Moreover, the company’s stock is trading near the 52-week high which can restrict the upside movement in the stock at the current levels. Based on the headwinds faced by the group, we have given a "WATCH" recommendation at the current price of GBX 128.40 (as on 27 August 2019), while we look for any upcoming catalysts in the near term.
 
*All forecasted figures and peer information have been taken from Thomson Reuters.

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