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Is Now the Time to Buy Bunzl?

By Rupert Hargreaves - Apr 2, 2013 at 3:28PM

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Should you buy Bunzl today?

LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market.

So right now I am trawling through the FTSE 100 and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.

Today I am looking at Bunzl (BNZL -0.28%) to determine whether you should consider buying the shares at 1,274 pence.

I am assessing each company on several ratios:

  • Price/Earnings (P/E): Does the share look like a good value when compared against its competitors?
  • Price Earnings Growth (PEG): Does the share look like a good value factoring in predicted growth?
  • Yield: Does the share provide a solid income for investors?
  • Dividend Cover: Is the dividend sustainable?

So let's look at the numbers:

Stock

Price

3-Year EPS Growth

Projected P/E

PEG

Yield

3-Year Dividend Growth

Dividend Cover

Bunzl

1,274p

19%

16.8

2.8

2.2%

21%

2.5

The consensus analyst estimate for this year's earnings per share is 76 pence (6% growth) and dividend per share is 30.7 pence (9% growth).

Trading on a projected P/E of 16.8, Bunzl appears cheaper than its peers in the support services sector, which are currently trading on an average P/E of around 19.6.

Unfortunately, Bunzl's P/E and growth rate give a PEG ratio of around 2.8, which implies the share is expensive for the near-term earnings growth the firm is expected to produce.

Bunzl offers a 2.2% yield, which is just above the sector average of 2.1%. Nonetheless, Bunzl has a three-year compounded dividend growth rate of 21%, implying the yield will continue to stay above that of its peers.

Indeed, the dividend is around two-and-a-half times covered by earnings, giving Bunzl plenty room for further payout growth.

So, is now the time to buy Bunzl?
Bunzl is a global distributor to a variety of industries, supplying a wide range of products such as food labels, paper towels, surgical gloves and ear defenders.

Given the diverse range and everyday nature of the products distributed, the company's progress can be sensitive to the status of the global economy. However, as my table above shows, Bunzl's earnings have actually grown 19% over the past three years.

So it seems Bunzl's operations are relatively resilient to the economic environment and I believe this is due to the company's diversification. You see, Bunzl's broad customer base includes what I'd describe as some highly defensive sectors. In particular, during 2012, almost one third of Bunzl's group revenue came from the supply of products to the grocery sector, which included supermarket bags and food packaging.

Indeed, Bunzl's diversification and the company's growth over that past five years has really impressed investors and, since the beginning of the year, Bunzl's share price has gained around 28%, almost 20% more than the FTSE 100 as a whole.

However, this rapid rise in Bunzl's share price over such a sort period leads me to believe the company currently looks overvalued. So overall, despite Bunzl's strong growth and current discount to peers, I believe now does not look to be a good time to buy Bunzl at 1,274 pence.

More FTSE opportunities
Although I feel now may not be the time to buy Bunzl, I am more positive on the FTSE 100 share highlighted within this exclusive free report.

You see, the blue chip in question offers a 5.7% income, its shares might be worth 850pcompared to about 700 pence now -- and it has just been declared "The Motley Fool's Top Income Stock For 2013"!

Just click here to read the report -- it's free.

In the meantime, please stay tuned for my next verdict on a FTSE 100 share.

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Bunzl plc Stock Quote
Bunzl plc
BNZL
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