LONDON -- To me, capital growth and dividend income are equally important. Together, they provide the total return from any share investment and, as you might expect, my aim is to invest in companies that can beat the total return delivered by the wider market.
To put that aim into perspective, the FTSE 100 has provided investors with a total return of around 3% per annum since January 2008.
Quality and value
If my investments are to outperform, I need to back companies that score well on several quality indicators and buy at prices that offer decent value.
So this series aims to identify appealing FTSE 100 investment opportunities and today I'm looking at Bunzl (BNZL -0.13%), a specialist distribution company.
With the shares at 1285 pence, Bunzl's market cap. is £4,257 million.
This table summarizes the firm's recent financial record:
|
Year to December |
2008 |
2009 |
2010 |
2011 |
2012 |
|---|---|---|---|---|---|
|
Revenue (£m) |
4,177 |
4,649 |
4,830 |
5,110 |
5,359 |
|
Net cash from operations (£m) |
206 |
248 |
222 |
315 |
265 |
|
Adjusted earnings per share |
52.7p |
55.9p |
60.6p |
68.5p |
71.8p |
|
Dividend per share |
20.6p |
21.55p |
23.35p |
26.35p |
28.2p |
Although active in 27 countries, Bunzl's most important market is North America, which delivered 54% of overall revenue last year. Continental Europe accounts for 20%; U.K. and Ireland, 19%; and the rest of the world 7%.
The firm specializes in distributing the things that businesses consume themselves, rather than sell, and which are essential for them to run -- things like grocery, food service, cleaning, safety, and health care. By providing its customers with value-added integrated supply services, including procurement and inventory management, Bunzl frees them to focus on their core businesses.
It's an outsourcing-service solution that has proved very popular and Bunzl has seen steady growth both organically and by acquisition. Continued expansion looks set to continue, which makes the firm's total-return prospects look interesting.
Bunzl's total return potential
Let's examine five indicators to help judge the quality of the company's total return potential:
- Dividend cover: adjusted earnings covered last year's dividend just over 2.5 times. 4/5
- Borrowings: net gearing is around 85% with net borrowings about 2.8 times earnings. 3/5
- Growth: revenue and earnings have grown steadily with bumpy cash flow. 4/5
- Price to earnings: a forward 15.8 looks ahead of growth and yield expectations. 2/5
- Outlook: good recent trading and an optimistic outlook. 4/5
Overall, I score Bunzl 17 out of 25, which encourages me to believe the firm has potential to out-pace the wider market's total return, going forward.
Foolish summary
Positives include decent dividend cover, steady growth and an encouraging outlook. Profitable trading supports the firm's debt, but the valuation looks full given expectations.
Bunzl is trading well but can stay on my watch list for now. I'm more likely to buy a share that one of our top investment writers reckons is the "Motley Fool's Top Growth Share for 2013". In this new report, you can discover how the firm has reenvisioned itself to allow for tremendous growth along new horizons. Right now, the report is free to download and tells you exactly why our expert has put his money where his mouth is with this evolving, yet well-established company. To get your copy, click here.
