Despite the release of a reassuring market update in recent weeks, investor appetite for support services provider Bunzl (LSE: BNZL) remains pretty muted.
The market is still concerned over the impact of ongoing Brexit negotiations on business confidence, and consequently on demand for the services of outsourcers like Bunzl. And these concerns are certainly valid — just this week Mitie Group issued yet another profit warning, its third in less than six months, as it advised that its “property management and technical FM divisions have been impacted by client deferrals and investment plan delays.”
While not totally immune to these troubles, Bunzl isn’t solely dependent on the UK economy to drive revenues owing to its broad geographic imprint. Indeed, the company advised in December that new business wins had caused revenues to pick up during the fourth quarter of the year, prompting the company to affirm its sales growth projections of 14%-15% for 2016.
And I believe a similarly-positive full-year statement (scheduled for Monday, February 27) could send Bunzl’s share price rising.
The City certainly remains upbeat about Bunzl’s outlook in the coming years and expects the company to follow a predicted 11% earnings rise for last year with rises of 8% and 4% in 2017 and 2018 respectively.
While a prospective P/E ratio of 19.5 times may slide above the FTSE 100 forward average of 15 times, I believe Bunzl’s broad territorial spread and appetite for acquisitions should deliver splendid earnings expansion well into the future.
Make smoking returns
I also reckon cigarette giant British American Tobacco (LSE: BATS) should remain a reliable earnings generator in the years to come.
The company’s long string of market-leading labels like Dunhill and Lucky Strike continue to defy the impact of rising legislative action and changing smoker habits on the wider tobacco industry, factors that are driving aggregate global sales steadily lower. Indeed, British American Tobacco saw volumes of these so-called Global Drive Brands rising 9.8% during January-September.
And like the case of Bunzl, I believe signs of further sales momentum inside the firm’s full-year financials (currently slated for Thursday, February 23) could see stock pickers piling in again.
Moreover, recent acquisition news also provides reason to be hugely optimistic about British American Tobacco’s bottom-line prospects. The business advised this week that its $49.4bn takeover approach for US giant Reynolds had been accepted, the firm acquiring the 42.2% of the company it didn’t already hold and boosting its position, not only in the US but across the globe.
The number crunchers remain positive about the firm, and have chalked-in earnings rises of 15% this year and 7% in 2018, following on from an anticipated 18% rise for 2016.
And I reckon a subsequent forward P/E ratio of 16.5 times, allied with a 3.8% dividend yield, represents terrific value given British American Tobacco’s ever-improving market position.