When you think of the FTSE 100, understandably you think of big names – the internationals, the blue-chips – it is, after all, the index of the UK’s 100 (give or take a few at any particular reshuffle) largest companies.
But just as with the rest of life, it is sometimes those unknown names, those unassuming and less glamorous firms that can offer some of the greatest opportunities. I think Bunzl (LSE: BNZL) may be just such a company.
Named after its founding family and dating all the way back to the 19th century, the company is a London-based distribution and outsourcing firm. In practice, this means it supplies other businesses with all the small, uninteresting things that they need to operate business as usual. Think bin bags and hard hats rather than engineering equipment or computer components.
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Sell a few expensive things or a lot of cheap ones
The old adage says that for a business to make money, they either have to sell a few very expensive things, or a lot of very cheap things (naturally there is a middle ground in practice). Bunzl veers towards the latter of these two philosophies, and has been doing well because of it: its 2018 results showed a turnover of £9bn and it employs 17,500 people spread across the globe.
The company, which as I said was founded by the Bunzl family, has long had a strategy of acquiring other family-run businesses, all of which need to be margin-enhancing and scalable. The result has seen the firm grow by about 10% per year for decades. Importantly for investors, the company has translated this to year-on-year dividend growth as well.
Brexit good, slowing economy bad…ish
In a rarity for most firms, Bunzl has actually been benefiting from the uncertainty surrounding Brexit, specifically because of the weakening pound. The company gets almost 60% of its revenues from the US, but of course, being London-based, repatriates this cash and reports in sterling.
With the weakness of the pound, these US dollars coming back to the UK simply translate as more pounds than they normally would. This is an additional boost at the moment of course, rather than a long-term strategy, but it is good to see.
The company actually tends to have growth in line with the broader economy, which makes sense if you think of the essential nature of its product. Of course this means growth slows down for the firm if the economy is weakening, however, unlike businesses that sell more discretionary products, the loss of sales for Bunzl is somewhat limited. Companies will, after all, always need printing paper and coffee stirrers even if they are cutting back costs.
As an investment opportunity, I think Bunzl should seriously be considered. Its acquisition strategy has slowed down of late, and its latest earnings numbers came in at the lower end of expectations. Meanwhile growing concerns surrounding the economy also mean there may be some more downside to come before the shares go up again.
But even with all these issues, I think for a long-term investor, Bunzl may be one to add to a portfolio.
