Thursday tips round-up: FirstGroup, Bunzl

12th Dec 2013 10:31

Sometimes acquisitions can go terribly wrong. That's what happened after First Group's debt-financed purchase of US outfit Laidlaw, in 2007. That has been reflected in the company's share price, which has been off by 80 per cent since then, while rival Stagecoach has seen its stock price appreciate by almost a third. Wednesday, however, saw the arrival of Sandell Asset management on the scene, turn-around plan in hand. One of its main propositions is to sell Greyhound, just as FirstGroup originally intended when it took over Laidlaw. That was one of management's biggest mistakes. As well, John McFarlane, who helped insurer Aviva get its mojo back, takes over as Chairman next month. Between him and Sandell FirstGroup's train is about to depart, the Financial Times' Lex column said. There are companies whose business models are inherently difficult for analysts to cope with. One such case is Bunzl, which distributes a wide range of "not for resale" items. Those include plastic cutlery, tea bags and cleaning products to the workplace. More importantly, the company is an avid purchaser of other businesses, instead of pursuing organic growth. It acquires companies for their revenues, customer base and management. The firm then proceeds to lift their margins by adding them to its existing network. Unfortunately, that gives analysts a hard time when trying to forecast its financials, as they have no idea how much future growth to factor into their estimates. Yet it is a near-certainty that these transactions will not dry up. The shares sell on more than 17 times' this year's earnings. That is high in historical terms and suggests no urgent reason to buy. "Yet they remain attractive long-term for those growth prospects," The Times' Tempus reported.Please note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.