Bunzl raised to 'buy' by Deutsche Bank

22nd Jun 2015 09:42

Deutsche Bank upgraded Bunzl to 'buy' from 'hold' and raised the target price to 2,000p from 1,900p."We have admired Bunzl's fundamentals for years: Bunzl is a cash compounder with a resilient business model and plenty of opportunities for consolidation within its multiple end markets," said Deutsche.However, it said that the stock's premium valuation has made it difficult to find an entry point. It now believes there is an opportunity, as Bunzl's price-to-earnings ratio relative to the market is at the lower end of its post-2011 range."It would of course be naive to think that Bunzl does not de-rate from a 2016E P/E of 19x if the market de-rates materially, however we believe Bunzl should outperform under such a scenario," it said.DB said Bunzl is well embedded with customers, has limited competition globally and operates across several fragmented markets that offer opportunities for bolt-on mergers and acquisitions.The bank said it forecasts 2% organic growth 2015 and a 10 basis points improvement in the earnings before interest, tax and amortisation margin.Risks to the buy story would include the loss of a large customer in the US, low growth in key markets and forex devaluations.At 10:01, Bunzl shares were up 1.6% at 1,877p.