Bunzl
Revenue £6.5bn Dividends 38p
Some are starting to wonder whether the gilt is beginning to come off Bunzl. The company distributes workplace equipment such as napkins, plastic cutlery and the like. It has been an extraordinarily reliable performer since Michael Roney took over as chief executive in 2005, total shareholder returns averaging 17 per cent.
Mr Roney stands down this spring and the latest figures for 2015 show some slackening of the pace of organic growth, only 0.4 per cent last year. Before now, Bunzl has tended to grow organically by more than the GDP in the countries in which it operates. Mr Roney’s successor has been chosen and he, like many of the other senior executives, arrived when he sold his business to Bunzl.
Operating in as many markets as it does, the company is bound to experience a temporary downturn in some of them. Brazil was the weak performer here. The recession and political uncertainty in that country, which accounts for about 4 per cent of group revenues, has led to reduced employment and fewer takers for the safety equipment it distributes. Another negative is the low oil price and the lack of demand from the US shale industry.
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Yet the main factor holding back performance last year, without which that GDP-plus target would have been hit, has been price deflation in the plastic goods that Bunzl distributes, holding back the amount that it gets paid by customers.
That organic growth is only half the story, because Bunzl has always expanded by acquisition, buying in profits of about £40 million last year in what was a record year for deals, £327 million spent as opposed to £211 million in 2014. Those purchases account for almost all the growth in revenues of 5 per cent, while improved margins left adjusted operating profits 7 per cent higher, at constant exchange rates, at £455 million.
Three more deals were announced yesterday, one in Brazil, one in California and one in Turkey. The company insists that there is no sign of that pipeline of deals slackening and, indeed, there is no reason why it should. The shares, off 2p at £19.33, have been treading water since the autumn. They sell on 20 times earnings. Still worth it because the growth story is intact.
My advice Buy long term
Why There are fears in the market that the growth may be slowing at Bunzl, but record acquisitions last year suggest it will continue
Jupiter Fund Management
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Assets under management £35.7bn
Jupiter’s business model is easy enough to understand. The debt incurred in the 2007 buyout from Commerzbank was paid off in 2014 and most of the cash subsequently generated, therefore, can be paid out to investors, including the 80 per cent of staff who own shares. The company does not indulge in expensive acquisitions, but prefers to grow organically by opening in new markets. It operates in eight countries, with modest offices just opened in Spain and Italy.
Assets under management grew by 12 per cent in 2015 to £35.7 billion, quite an achievement given the state of the markets, including net inflows of new business worth £1.9 billion. We are told that so far this year, despite the highly turbulent conditions on stock markets, assets are still in positive territory.
Jupiter aims for a payout ratio of 80 per cent of available funds. Actually, this ratio was exceeded last year. If you strip out a special dividend paid in 2014 from the sale of some private client business, the like-for-like payments were up by 29 per cent to 25.5p.
Obviously, this year’s payout will depend on the state of the markets, but on any reasonable assumptions the shares yield about 6.3 per cent. They fell 4¾p to 400¼p yesterday and have come back from about 470p last autumn.
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The fund managers traditionally offer a decent income, even if dividends elsewhere may be under threat, especially from those exposed to emerging markets. That yield, though, is among the best available in the sector and makes Jupiter worth holding.
My advice Buy for income
Why The yield, over 6 per cent, is among the sector’s best
Keller Group
Revenue £1.6bn Dividends 27.1p
Keller is one of any number of companies blindsided by the collapsing oil price, but it is one of the less obvious victims. The engineer, which specialises in providing ground foundations, agreed in June 2013 to pay £150 million for a Canadian piling business. Much of its work came from oil and shale and the deal was struck when the oil price was at a high point.
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The company is now taking a £31 million write-off on the deal. It was about the only negative in results for 2015. Despite any problems in Canada, the wider North America, comprising about half the group, was again the standout performer.
Keller has not been considered a strong income stock, but dividends are up by 7.5 per cent and the balance sheet is strong, raising the eventual possibility of extra returns to investors, assuming the money is not used on acquisitions. There were two last year and the company reckons to have only 5 per cent of its addressable market, worth $50 billion a year in total. The shares, up 34½p at 829½p, are back from more than £10 last year and sell on less than nine times earnings. The fall looks overdone.
My advice Buy long term
Why Keller should benefit from consolidation in sector
And finally . . .
As Ultra Electronics has conceded, government defence spending cuts meant that 2015 was difficult, but the company did make its biggest acquisition, the $260 million purchase of an American electronics warfare specialist. Ultra is sufficiently well placed to benefit from the expected upturn, with delayed 2015 orders likely to be secured in the first half of this year. Meanwhile, the company has picked up a new contract to produce electronic hardware for a US ballistic missile programme.
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