North America Turnaround And Global Expansion Will Strengthen Outlook

Key Takeaways

• Recovery in North America, own-brand growth, and strategic acquisitions are set to drive future margin and earnings improvement despite current macro challenges.
  
• Strong recurring demand for health, hygiene, safety, and sustainable products supports stable revenues and positions Bunzl for long-term growth amidst changing regulations and market trends.
  
• Flat organic growth, margin compression, and operational setbacks signal structural challenges and ongoing reliance on acquisitions, posing risks to sustainable profitability and long-term expansion.

Catalysts

Operates as a distribution and services company in the North America, Continental Europe, the United Kingdom, Ireland, and internationally.

• The turnaround of the North America Distribution business – which suffered from over-centralization and execution missteps but is now regaining local autonomy, improving service and inventory levels, and re-energizing sales teams – sets the stage for a recovery in revenue growth and operating margin beginning in H2 2025 and accelerating through 2026, though current results do not yet fully reflect these improvements.
  
• Further expansion of Bunzl's own-brand/product portfolio, with successful recent launches and additional launches planned, is expected to drive margin improvement and earnings growth over time, leveraging higher gross margins and improved competitive differentiation versus pure-play distributors.
  
• Heightened global demand for health, hygiene, and safety consumables remains a durable driver of underlying revenue, particularly as regulatory requirements tighten and industries maintain elevated standards post-pandemic, resulting in stable or growing recurring revenue streams and net margin support.
  
• Bunzl's active acquisition pipeline (with 1,300+ identified targets) and ongoing strategic M&A, including recent moves into new international markets (e.g., Chile, Mexico), reinforce long-term revenue and geographic diversification, positioning the company to capture synergies and supplement organic growth even as near-term deal flow is temporarily impacted by macro uncertainty.
  
• The global push toward environmentally-friendly packaging and supplies is likely to increase demand for Bunzl's sustainable product alternatives, boosting top-line growth opportunities and providing potential pricing power, with future revenue and margin tailwinds as customers shift procurement toward 'green' solutions.

Bunzl Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bunzl's revenue will grow by 2.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.1% today to 4.4% in 3 years time.
• Analysts expect earnings to reach £553.1 million (and earnings per share of £1.69) by about August 2028, up from £483.6 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting £657.6 million in earnings, and the most bearish expecting £458.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.8x on those 2028 earnings, up from 16.9x today. This future PE is greater than the current PE for the GB Trade Distributors industry at 15.0x.
• Analysts expect the number of shares outstanding to decline by 0.72% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.99%, as per the Simply Wall St company report.

Bunzl Future Earnings Per Share Growth

Risks

• Persistent margin pressures in key regions, particularly North America and Continental Europe, have resulted in declining adjusted operating profit and a significant reduction in group operating margin (down 100 basis points to 7%), highlighting potential structural challenges that could continue to depress net margins and earnings.
  
• Slow or inconsistent execution of strategic changes-especially in the North American Distribution business, where over-centralization reduced agility and responsiveness for local customers-led to loss of wallet share, higher fixed costs, and weakened supplier engagement, undermining revenue growth and increasing volatility in profits.
  
• Underlying revenue growth is essentially flat or negative (declined 0.2% in H1), with acquisitions being the primary driver of top-line expansion; this indicates limited organic growth prospects and heavy reliance on ongoing M&A, which is vulnerable to macroeconomic uncertainty, asset price inflation, and a lumpier pipeline, thereby constraining long-term revenue growth.
  
• Exposure to continued deflationary pricing environments, especially in Cleaning & Hygiene and certain foodservice sectors, combined with heightened inflation in operating costs, labor, and inventory, poses risk to stable gross margins and could further compress net earnings if pricing power cannot be maintained.
  
• Supply chain, regulatory, and geopolitical uncertainties-including tariff volatility, increasing sustainability and compliance requirements, and uneven post-pandemic demand-raise operational complexity, potentially increasing costs and restricting profitable product ranges, thus negatively impacting future revenue and margin mix.

Valuation

• The analysts have a consensus price target of £26.386 for Bunzl based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £32.8, and the most bearish reporting a price target of just £19.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £12.6 billion, earnings will come to £553.1 million, and it would be trading on a PE ratio of 19.8x, assuming you use a discount rate of 9.0%.
  
• Given the current share price of £24.9, the analyst price target of £26.39 is 5.6% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.