Is Bunzl a Buy?

LONDON -- Distribution specialist Bunzl  (LSE: BNZL  ) has a solid track record of delivering dependable earnings growth. The company's shares have made a sterling start to 2013, up 19% in the year to date and punching record highs above 12 pounds in the process.

However, I believe that Bunzl fails to offer stock pickers decent value at current levels and a correction is overdue. Indeed, I sense earnings growth is likely to lag over the medium term, particularly if macroeconomic headwinds pick up. I therefore believe more attractive investment opportunities can be found elsewhere.

The slow lane to earnings growth
Bunzl, considered by many as the global leader in the distribution of consumable products such as food packaging and paper towels, disappointed in its December trading statement by announcing underlying revenue growth of just 2.5% for 2012.

The company has embarked on an ambitious acquisition path during the past year to engineer future growth. In January, the firm secured the takeover of Vicsa Safety and Vicsa Brasil -- which distribute personal protection equipment across much of South and Central America -- and U.S.-based Schwarz Paper.

But I believe the company will have to bump acquisition activity much higher to massage its earnings potential to enticing levels. City analysts estimate a miserly 3% earnings per share increase to 70 pence for 2012, results for which are due on Monday, Feb. 25.

And earnings per share are not expected to pick up significantly thereafter. EPS is forecast to grow 6% for 2013 to 75 pence, followed by a 7% uptick in 2014 to 80 pence.

An expensive choice
The galloping share-price ascent has also lowered investor value for money. A P/E ratio of 17 for last year is expected to remain high over the medium term, dropping to 16.1 and 15 for 2013 and 2014, resepctively.

Indeed, a forecast price/earnings to growth (PEG) rating of 2.8 and 2 for the next two years, although down from an anticipated 5.8 for 2012, remains far above the benchmark of 1, which represents true value for money.

Bunzl's expected dividend yield of 2.5% for last year is expected to rise to 2.6% this year and 2.9% in 2014, according to City experts. But in my view, these payouts are far from outstanding and do not mitigate the company's top-heavy PEG ratio.

The inside track to growth elsewhere
So although Bunzl offers dependable growth, I reckon investors should hold fast on plowing into the firm at recent prices. I would also strongly recommend punters check out this special Fool report, which outlines the steps you might wish to take if you are hoping to become seriously rich from other shares.

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