Goldman Sachs upgrades Bunzl stock rating to Neutral on balanced risk/reward

Goldman Sachs upgraded Bunzl Plc. (LON:BNZL) from Sell to Neutral and raised its price target to GBP25.10, citing a more balanced risk/reward profile after the stock's significant year-to-date decline. The upgrade reflects in-line first-half results, the resumption of its share buyback program, and robust financial health, despite forecasts for broadly flat underlying growth and 7.6% EBITA margins in 2025. This indicates reduced near-term risks for the distributor, with the new price target suggesting modest upside potential.

Analysis

Goldman Sachs has upgraded Bunzl Plc. to Neutral from Sell and increased its price target to GBP25.10, signaling a more balanced risk/reward profile following a significant stock price correction. The stock's decline of over 20% year-to-date, which followed a profit warning that lowered 2025 growth and margin expectations, appears to be the primary driver for the re-rating. Near-term risks are seen as abating due to in-line first-half results and the resumption of the company's share buyback program. Despite the upgrade, the fundamental outlook remains muted, with Goldman forecasting broadly flat underlying growth for fiscal 2025, in line with management guidance. The company’s financial health is robust, as evidenced by a perfect Piotroski Score of 9 and a 46-year history of uninterrupted dividend payments. However, margin pressure is a key concern; after expanding from 7.0% in 2019 to 8.3% in 2024, EBITA margins are projected to contract to 7.6% in 2025. Goldman does not anticipate margins exceeding 8% in the near term, reinforcing the cautious nature of the Neutral rating, which implies only a 5% upside from current levels.

Key Decisions for Investors

• The upgrade to Neutral suggests the stock has likely priced in the negative impact of its earlier profit warning, making it prudent for investors to hold existing positions rather than sell at current levels.
• Investors seeking strong top-line growth should remain cautious, as consensus forecasts point to flat underlying growth in 2025 with only a slow recovery expected in 2026.
• Given the stock's year-to-date decline and an assessment of being slightly undervalued, value and income-focused investors might consider the company's strong balance sheet, perfect Piotroski score, and 46-year dividend history as an attractive entry point.
• Monitor EBITA margin performance against the forecast of 7.6% for 2025, as any significant deviation from this new baseline will be a key catalyst for the stock.