Today’s update from support services company Bunzl (LSE: BNZL) is in line with expectations and shows that the company is making encouraging progress. Notably, Bunzl has announced three new acquisitions, with businesses having been purchased in France, Spain and Chile. This brings the company’s total number of acquisitions to 21 in 2015, which is its most active year ever in the M&A space.
Although no financial details regarding the acquisitions were released, Bunzl has now spent around £320m on buying other companies in 2015 and, with its revenue set to increase by 5% for the full-year, its mix of organic growth and acquired growth appears to be a relatively healthy one.
Looking ahead, Bunzl is forecast to increase its earnings by 5% in 2016. This is below the wider market’s typical growth rate and yet Bunzl trades on a relatively high valuation. For example, it has a price-to-earnings (P/E) ratio of 19.8 and this indicates that its shares could be fully valued at the present time.
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Certainly, Bunzl is a very stable business that offers a much higher degree of consistency than most of its index peers, but following a share price gain of 160% in the last five years it lacks appeal as a new investment.
Valuation under pressure
Similarly, ABF (LSE: ABF) also appears to be rather expensive right now. In its case, it has a P/E ratio of 33.3 and yet the company’s bottom line is due to fall by 2% in the current financial year.
Of course, ABF is viewed as a highly defensive and diversified business, which for some investors means that it deserves a premium rating. However, ABF is becoming increasingly reliant on its retail division, with Primark continuing to grow at a rapid rate and remain popular among price-conscious consumers. As such, ABF’s defensive reputation may come under threat moving forward and this could cause its valuation to come under pressure over the medium term.
Furthermore, ABF lacks income appeal. In fact, it yields just 1% at the present time. When the FTSE 100 yields four times as much, trades on half the valuation and offers much less company-specific risk, it’s difficult to justify the purchase of ABF’s shares.
Standing tall
One stock that does appear to be worth buying at the present time is National Grid (LSE: NG). With stock markets being exceptionally volatile in recent months, National Grid offers a degree of stability that’s hard to match. And with it being focused on the transmission of power rather than its supply, it doesn’t have the same degree of political risk as many of its utility peers. As such, National Grid’s P/E ratio of 14.9 indicates good value for money.
Looking ahead, National Grid’s beta of 0.75 means that its shares should continue to offer a less volatile shareholder experience than is the case for the wider market. And with it yielding 4.9% from a dividend that’s expected to rise in line with inflation over the medium term, it remains both a top notch income play and value play for the long term.
