RBC says Bunzl shares are overvalued, keeps at 'underperform'

Bunzl's recent share-price rebound means the stock is "too expensive", according to RBC Capital Markets which reiterated an 'underperform' position on the distribution company on Monday.

Following a trading update last week, the broker reviewed its estimates for the company, but made minor changes to profit forecasts for the next two years. It expects modest organic revenue declines in 2024 with limited recovery in 2025 as a result of recent falls in raw materials pricing – "which we believe underpin the bulk of Bunzl's product portfolio", RBC said.

"BNZL's share price has disconnected from a composite index of the global chemicals and paper/packaging sectors to which it has historically been highly correlated, and we see scope for pressure on both consensus organic revenue growth assumptions and BNZL's relative valuation on a 12-month view," the broker said.

The stock currently trades at 3,121p as of Monday morning, up 0.3% on the day, with the shares having now rebounded over 16% since hitting a yearly low of 2,680p in August. However, RBC has just a 2,600p target price on the stock.

"We see the group's heavy dependence on M&A for the bulk of profit growth as unique within our coverage universe and see the stock as overvalued compared to other companies in the wider sector with stronger organic profit growth profiles and M&A optionality on top."