Bunzl, a UK-based distribution and outsourcing company, experienced a significant surge in share prices, nearly increasing by 8% late Tuesday morning in London. This positive momentum was fueled by the company's decision to upgrade its guidance for adjusted operating profit for the year 2024, alongside the announcement of a new capital allocation strategy aimed at enhancing shareholder value.
According to Bunzl, the company is anticipating a "strong increase" in its adjusted operating profit relative to the previous year, provided that exchange rates remain stable. The group has projected an operating margin that is expected to be moderately above the level reported just a year ago. In terms of revenue, Bunzl is still confident in achieving robust growth for 2024, attributing this mainly to the strategic acquisitions that have already been executed during the year.
The firm reported an adjusted operating profit totaling £455.5 million for the first half that ended on June 30, a notable increase from the £438.3 million reported in the same period last year. The operating margin also saw an increment, rising to 8.0% from 7.4%, affirming the company's improved margin performance and the contributions from acquisitions.
However, amidst these positive developments, Bunzl reported a dip in first-half profit attributable to equity holders, which fell to £198.7 million, down from £237.2 million a year ago. Additionally, revenue saw a decline, decreasing to £5.71 billion from £5.91 billion. Despite these figures, Bunzl pointed out that underlying revenue trends had improved in the second quarter, with expectations of continued growth in July and August.
In line with its strategic outlook, Bunzl has unveiled new three-year capital plans, which include a comprehensive share buyback program of up to £250 million. This initiative is expected to be executed by March 3, 2025. Furthermore, the company has indicated plans for an additional share buyback valued at up to £200 million, which is expected to be announced alongside its preliminary results for 2024.
Bunzl has also earmarked a substantial £700 million annually for value-accretive acquisitions and capital returns to enhance shareholder engagement. Analysts at RBC Capital Markets have weighed in on these developments, describing today’s announcements as major news. They noted the new capital allocation policy, which promises an absolute level of spend, thereby providing greater flexibility in balancing mergers and acquisitions (M&A) with share buybacks.
Furthermore, they highlighted a commitment of £450 million in total, structured in two segments surrounding the fiscal year 2024 results. While this strategy is anticipated to be favorably received in the short term, some analysts express concern that it may implicitly acknowledge challenges related to the level of M&A spending, which Bunzl heavily relies on for its growth trajectory.
In conclusion, Bunzl's proactive measures toward strategic capital allocation and its promising profit forecast for 2024 position the company for potential success in the competitive marketplace. The ongoing achievements in operating profit and margin performance indicate a robust recovery and a forward-looking strategy to enhance shareholder value..