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On Thursday, RBC Capital Markets upgraded Bunzl’s rating to ‘sector perform’ from ‘underperform’ and revised the price target upwards to 3,350p from 2,700p. This change comes in response to easing revenue headwinds and a more favorable outlook for the company.
RBC Capital Markets’ analysts noted that Bunzl (LSE:BNZL) had previously faced challenges related to deflation, which impacted its performance. However, the upgrade reflects a more optimistic view on revenue and margin prospects. The bank highlighted that the brighter outlook is driven by expectations of improved revenue performance and stronger margins. Additionally, RBC expressed confidence in Bunzl's strategic execution in mergers and acquisitions (M&A) and its new capital allocation strategy. This revised approach is anticipated to attract a broader range of stakeholders.
The increase in the price target is also indicative of the value anticipated from future M&A activities. RBC’s updated price target reflects expectations of growth and value creation through strategic acquisitions. The bank also adjusted its earnings per share estimates for the fiscal years 2024 and 2025, increasing them by approximately 2% and 4%, respectively. This adjustment takes into account expected improvements in margins, incremental contributions from M&A, and a significant share buyback program valued at around £450m.
Despite the upgrade and the positive revisions, RBC Capital Markets mentioned a preference for other stocks in the B2B distribution sector. Specifically, DCC and RS1 are highlighted as more favorable options compared to Bunzl in the current market environment.
As a result of the upgrade, Bunzl’s shares saw a rise of 1.6%, reaching 3,516p at 1040 BST. This increase reflects the market’s positive reception of the revised outlook and the improved rating from RBC Capital Markets. The market reaction underscores investor confidence in Bunzl’s improved prospects and strategic direction as outlined by the analysts.