While activist investors talk about the break-up value to be released from splitting companies apart, conglomerates continue to grow through acquisitions. Packaging maker Bunzl (BNZL) is firmly in the latter camp.
Does anyone there ever pause to think whether each acquisition is really value for money?
Its latest trading update wasn’t about trading at all, which is pretty much in line with the previous guidance. It was about the latest acquisition, Lightning Packaging, which distributes industrial packaging throughout the UK. This takes spending on acquisitions this year to a company record £600 million and as “the pipeline for acquisitions remains active” it is quite possible that the previous high of £327 million in 2015 will be doubled before the month is out.
I just get the feeling that the joy of the takeover trail has taken control of the Bunzl boardroom. Does anyone there ever pause to think whether each acquisition is really value for money? Organic growth this year has been propelled by low-margin businesses bought last year, which suggests that growth is being pursued for its own sake.
Bunzl went on a massive buying spree in the 1980s, at one stage buying up three companies a week. It all ended in tears then. The fear that history may repeat itself stops me from considering Bunzl as an investment.
Keep an Eye on Carphone
After a difficult year that saw shares in Dixons Carphone (DC.) fall from 350p to 150p, there was some light relief when interim results pushed the shares 15% higher over two days. Now I’m a great optimist and, as a Dixons shareholder, I really want to believe that the troubles are over. But when you have bought at a higher price, as I have done, it’s not a good idea to turn a blind eye to the problems.
Much of the relief came from the decision to maintain the interim dividend, with a strong indication that the final payout will also be unchanged, which assuaged fears of an imminent dividend cut, but Dixons will have to start doing better soon to justify this decision.
The old Dixons retailing outlets are doing well; the disappointment is in the Carphone Warehouse half of the merger. Customers are hanging onto their phones for 29 months instead of trading in for the newest model after 24. As Dixons recovers the cost of the phones over the lifetime of the contract, the impact of this phenomenon will continue to depress sales and profits for a while yet.
Management is taking steps to address this issue and there are positive signs for the group’s operations in Scandinavia and Greece. Some of the sales decline in the UK has come from closing unprofitable stores, which should start to help the bottom line.
Nonetheless, profits for the 26 weeks to October 28 are down sharply and the projected range for the full year is slightly lower than the spread of existing forecasts. I shall not be topping up my holding at this stage.
Trinity's Bad Buyback
Trinity Mirror (TNI) has spent £10m buying back 10 million shares, which according to a quick count on my fingers equates to £1 a share. The current price is 71p so that wasn’t a great success, except for those who had the sense to get out. If you are still in, it’s not too late to do likewise before the shares slide further. Loyalty may bring its own rewards but they cannot be counted in hard cash.
Until Next Year ...
In stock market terms the next two Fridays are effectively Christmas Eve and New Year’s Eve so there will be no columns from me on those days to spoil your festive spirit. Unlike last January, I will not be clearing off on an 11-week cruise so I will be back in the New Year. Until then I wish all readers a happy, healthy and above all prosperous Christmas and New Year.
Rodney Hobson is a long-term investor commenting on his own portfolio; his comments are for informational purposes only and should not be construed as investment advice, nor are they the opinions of Morningstar.
