Berenberg downgrades Bunzl to 'hold'

Analysts at Berenberg lowered their rating on business services outfit Bunzl on Thursday, stating the stock had gone from "one extreme to another".

Berenberg said Bunzl shares became "deeply oversold" and reached extreme levels of cheapness during the early stages of the Covid-19 pandemic. However, since then, it stated the group had emerged as "a relative winner".

The German bank, which also hiked its target price on the stock from 2,750.0p to 2,950.0p, said Bunzl firstly benefitted via its role in the distribution of personal protective equipment through the pandemic, and more recently as an inflation beneficiary.

As a result, Bunzl's shares have risen by roughly 26% since Berenberg upgraded the stock to 'buy' in July 2021 - up by 18% versus the market.

"The shares have now reached the opposite extreme in terms of market-relative valuation, and with the intensity of inflationary profit tailwinds likely to moderate from here, we see little more room for upside. As such, we downgrade our recommendation to 'hold'," said the analysts.

"A little under 19x P/E is not overly expensive relative to the sector, but in the current equity market climate, and given Bunzl's rather muted organic growth outlook, that looks quite fully valued."