CONSUMER CYCLICALS: Bunzl (BNZLLN; NR/BBB+ Stable) 7.5Y IPT

WNG €500m 7.5Y IPT MS+145/150 vs. FV +100 (-45)

• 3m par call, CoC at par.
• First time in euros; £30s/6Y trades tight at T+96 (-10 through Tesco, both on low cash px) and swaps back to Z+94.
• FV is based on secondary - given Bunzl Sterling does trade tighter on the higher rating (& margins) vs. Tesco we spread it 10bps inside here as well.

• Reminder this is B2B/a middle-man not a manufacturer of the products. US focused (54%) and APAC light (rest of world 12%) but otherwise global player.
• Has averaged teens in number of bolt-ons/yr; the total spend is around £500m mark but does seem to be increasing with year to date spend at £650m across 7 acquisitions. Cash flow from operations is ~£800-900m/yr for reference. It justifying this as sector is highly fragmented composing of smaller family businesses. Not much issue from us given 1) margins flat to improving 2) funded through operating cash flows 3) former would otherwise likely go to equity holders.
• It runs balance sheet at a reported net 1.5x vs. target 2-2.5x (target cleared by S&P). Net incl. lease liabilities it is at 1.9x and note both are on a sizeable cash balance of £1.4b but most of that seems to be a group cash pool its maintaining, net of which cash was £320m.
• Revenue trend in 1H was weak (-0.4%) but impressive margin growth allowed EBIT to grow in HSD (+7.4%). Analyst consensus is looking for flat FY revenues but margin expansion of +150bps to leave EBIT +4%. Q3 results come on the 24th of Oct/in a month.
• UoP is left broad, it has the £300m £25s due next year alongside ~£200m in private placement notes. Obviously headroom on leverage target (we see about £1.4b) which it could alleviate from using cash on hand for acquisition. Refi in £ seems near certain, unclear when it may revisit us.