Credit Suisse upgrades Bunzl in view of clients' medium-term focus on sustainability
Analysts at Credit Suisse upgraded shares of Bunzl from 'underperform' to 'neutral' and hiked their target price from 2,450.0p to 2,900.0p, telling clients that product inflation and corporates' sustainability agenda would more than offset a decline in Covid-related work, especially over the medium-term.
"In the mid to longer term we think that Bunzl’s scale and agnostic approach to product type means it can play an active role in supporting companies meet their sustainability targets," they said in a research note sent to clients.
Other supportive factors cited by the analysts included value-added mergers and acquisitions, as well as "relatively stable" end markets.
Combined, those last two factors should support mid-single digit total profit growth for the core business in the coming years, they argued.
Furthermore, "rising demand for higher margin own brand products in an inflationary environment should provide greater support going forward."
All told, they raised their earnings per share estimates for 2022-24 by 8.0-12.0%.
Nonetheless, the company also had its negatives, including "limited" organic growth, the full valuation of its shares and the near-term risks surrounding the renewal of its contract with its largest client, with the latter due to complete in 2022.
Regarding the valuation of its share price, Credit Suisse estimated that they were changing hands on 2023 price-to-earnings multiple of 17.2, against a 10-year average of 17.5.