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Goldman Sachs downgrades Bunzl after outperformance
Goldman Sachs has downgraded Bunzl to 'neutral' from 'buy' following outperformance, but sad it still views it as a long-term earnings compounder.
The bank noted that since being upgraded on 24 January, the shares are up nearly 19% versus a 0.5% drop for the FTSE World Europe.
"The shares have re-rated following a strong 1Q trading update, which showed no discernible negative impact from online competition. Our analysis suggests that this bond proxy stock now trades at a multiple that is broadly consistent with forecast yield expectations."
Goldman highlighted Bunzl's earnings per share compound annual growth rate of 10% over 2005-17, which was fuelled by acquisitions. It estimated that M&A has led to average 10% EPS upgrades for a given fiscal year over the past four years.
"We previously argued that the de-rating Bunzl had experienced due to concerns over online competition and rising yields was excessive," it said. However, following the first-quarter trading update, there is limited further valuation support for the shares, it said.
Goldman kept its 12-month 2,500p price target on the stock, implying 8% upside, which is lower than the sector median upside of 12%.
At 1255 BST, the shares were down 0.4% to 2,278p.