Investors need to breathe deeply into one of Bunzl’s paper bags. The shares suffered their biggest drop in three decades — when Bunzl was a glamour stock — on a steer from the company that revenue growth, ex acquisitions, had slowed to nearer 1.5 per cent. Analysts huffed that this year’s earnings might be a tad below expectations. Weaker growth of sales to grocery and retail customers in the US, combined with cost pressures, would eat into margins, they muttered.
JPMorgan brokers marked their 2019 and 2020 pre-tax profit forecasts down by 3.5 to 4 per cent. Bunzl shares — which hit a record high this month — fell below 19 times forecast earnings.
That should not frighten investors. Bunzl’s organic growth has been slowing pretty much in line with economic growth in the 30 markets it operates in, including the US, give or take a point or two. The company’s strategy of making small, low-risk and low-key acquisitions of family run businesses, into which it injects scale and efficiency, is unchanged. “The world is slowing a bit but there is nothing new in the Bunzl business model and if growth is slowing, it is not negative,” says a phlegmatic Frank van Zanten, Bunzl’s Dutch chief executive.
For a decade, earnings per share have on average grown 10 per cent a year. Of this, acquisitions — 157 businesses in 20 years at an average price of £20m — account for close to two-thirds. And while purchases tailed off a little last year, Bunzl has plenty of targets in the pipeline, generates lots of cash and keeps enough in the kitty to buy what it likes.
Bunzl is a long way from the house of tissue it was in the 1990s when it was nicknamed Bungle. Now Bunzl is an altogether sturdier wattle and daub mix of paper, plastic and chemical products. The company supplies most of the bits and bobs that businesses need, from mop heads, bin bags and stirring sticks to picks, spades and building materials. That should mean any number of piggies can bunk down comfortably under Bunzl’s roof, regardless of how many wolves or bears threaten to huff and puff and blow the house down.
“Poop poop” was Toad of Toad Hall’s joyful utterance on spotting a car in 1908. The bufonid might sound more jaded a century later after the warning put out by Pendragon on Wednesday. The motor dealer said that while its sales had risen in the first quarter, margins had been squeezed and losses before uglies were £2.8m, or £10m lower than expected. It comes after Pendragon has persistently missed even its own forecasts. Poop.
Poop again: the chief executive and finance director, both appointed this month, are launching a full-scale review of Pendragon’s strategy, finances and operations, which may or may not lead to a break-up.
Poop: sales across the industry are under pressure, hit by concerns about diesel and the slow roll-out of electric cars, as well as waning consumer confidence and threatened regulatory scrutiny of financing packages. New car registrations are falling at about 3 per cent a year. Pendragon’s revenues from flogging new cars rose 2.6 per cent in the first quarter, but new car gross profits fell 5 per cent.
Poop: Pendragon has focused on the used car market, banking on it being more resilient and less capital-intensive. Yet it is showing the signs of stress inherent in a fragmented market with low barriers to entry. Used dodgem revenues fell by 0.2 per cent and gross profits were down 1.6 per cent. After-sales gross profits were also down 5 per cent.
Poop: net debt at Pendragon, which has spent oodles over the years on acquiring market share, is heading towards three times earnings before funnies.
Poop: the shares fell a tenth as analysts mulled over what might come out of the review and considered cutting their pre-tax profits forecasts by about a fifth to below £40m.
Dilemma for Domino’s
Who will go and who will stay at Domino’s Pizza, the fast-food franchise group? The odds were on Stephen Hemsley, ex-chief executive in 2001, executive and non-executive chairman since 2008. He has been a director since 1998. This year a new corporate governance diktat limits chair tenure to nine years from the date of the first appointment to the board.
But shareholders are nudging at David Wild, chief executive since 2014. They reckon he should take the rap for Domino’s shares falling from 350p to 255p in three years, the slowdown in sales as well as in the roll out of new pizza joints, and the prolonged dispute with the company’s own franchisees.
That eases the immediate pressure on Mr Hemsley. The new governance provision explicitly states “to facilitate effective succession planning and the development of a diverse board, [the nine years] can be extended for a limited time”. But there still needs to be a good explanation.
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