Top UK Stocks to Watch: Bunzl sales grow thanks to Covid-related products

Bunzl stays on track to deliver growth this year, Drax continues to go green, Vectura pays a special dividend as it draws a line under the dispute with GSK, Kier Group prepares to raise equity, and PensionBee sets its IPO price as it prepares to become a publicly-listed company.

UK

Top News: Acquisitions and Covid-related products boost Bunzl sales

Bunzl said it is still expecting to report ‘robust revenue growth’ in 2021 as revenue rose in the early stages of 2021, driven by demand for its coronavirus-related products and boosted by acquisitions.

The company said revenue in the first quarter rose 5.4% at actual exchange rates and by 10.4% at constant currency, benefiting from additional sales from acquisitions and more trading days than the year before.

Underlying revenue growth at constant currency was 1.4%, in line with expectations and driven by demand for Bunzl’s coronavirus-related products like gloves, masks, cloths, soap and other cleaning products, which are predominantly own-brand. The top eight selling coronavirus-related products reported 6.4% underlying revenue growth in the quarter, more than offsetting a 5% decline in revenue from other product sales.  

‘Good underlying revenue performance in North America and Rest of the World was driven by demand for Covid-19 related products, with certain category-specific pricing remaining elevated, and a continuation of the recovery in sales of other products. Continental Europe and UK & Ireland continued to be impacted by the effect of pandemic-related restrictions, particularly on foodservice and non-food retail segments,’ said Bunzl.

Bunzl said it is still expecting to deliver higher revenue in 2021 at constant currency, although it is excluding around £550 million worth of revenue it booked from large contracts in 2020 when demand rocketed for stuff like gloves and masks.

‘A recovery in sales of other products is expected to be largely offset by a decline in smaller Covid-19 related orders, while recent acquisitions will further contribute to the group's performance in 2021. After excluding larger Covid-19 related orders, the group continues to expect good organic revenue growth in the first half of 2021 to be followed by a moderate decline in the second half. Group adjusted operating margin for the year is expected to return to a more historical level,’ said Bunzl.

Where next for the Bunzl share price?

The Bunzl share price was trending lower since the start of the year. The price found support at 2120 in early March and rebounded higher. 

The price has been trading above the 7-week ascending trending, it also pushed back over its 50 & 100 EMA which are currently flat indicating a neutral bias. 

Today’s drop lower took the share price briefly through the trendline support at 2400 to a daily low of 2394. However, the price has picked up from the low and it back above the trendline.  

Should the trendline hold then we could see the price look back towards 2535 the monthly high and just shy of the year to date high. Beyond here 2638 the November 2020 high could come into play. 

Failure for the trend line support to hold could see the sellers test 2356. A break below here could negate the current uptrend and see the sellers gain traction. 

Drax Group makes ‘robust’ start to 2021

Drax Group said it delivered a solid performance in the first quarter to keep it on track to meet expectations for the full year as the company continues to make the business green.

The power company recently stopped commercial coal generation and intends to fully close its operations in September 2022, and it sold off its gas generation assets earlier this year. Drax also recently completed the acquisition of Canadian biomass pellet company Pinnacle Renewable Energy to bolster its own supplies to feed its power plants.

The addition of Pinnacle more than doubles Drax’s pellet production capacity and will help significantly reduce costs.

‘The trading and operational performance of the group has been robust in the first three months of 2021. Full year expectations for the group remain underpinned by continued good operational availability for the remainder of 2021,’ said Drax.

Its power generation and pellet production operations both ‘performed well’ during the quarter, and Pinnacle performed as expected. Drax intends to release a more detailed update on Pinnacle when it releases its interim results on July 29.

Meanwhile, its business that supplies industrial and commercial customers also delivered during the quarter but its unit supplying SMEs continues to be impacted as some smaller businesses remain closed because of coronavirus restrictions. Drax said it is still exploring its options for the SME business.

The company confirmed it will pay a final dividend of 10.3 pence for 2020 if it is approved at its annual general meeting later today. That would mean the total dividend for the year will be 17.1p, up 7.5% from 2019.

Drax shares were trading 1.1% higher in early trade at 424.2.

Vectura draws line under GSK litigation with special payout

Vectura Group said it plans to distribute the royalties it has received from GlaxoSmithKline to shareholders through a special dividend as it does not need the funds to grow the business.

Vectura had been in a legal battle with GSK over a dispute about patents in the US concerning Ellipta products that treat asthma and chronic obstructive pulmonary disease, but said on Wednesday that GSK has chosen not to take its final chance to appeal the previous decision that ordered it to pay Vectura royalties.

Vectura said this means the ‘litigation is now considered to be fully resolved’.

The company has received £127.6 million in payments from GSK so far and £113 million will be returned to shareholders via a special payout of 19 pence per share. That will be paid on June 11.

‘The board has determined that the group is in a strong position to execute on its growth plans without the need to utilise these proceeds. Subject to shareholder approval, the company today announces a proposed special dividend of 19 pence per existing ordinary share followed by a share consolidation,’ said the company.

Vectura shares were trading 3% higher in early trade at 114.8.

Kier Group prepares to raise equity despite improved performance

Kier Group said it returned to profit, started generating positive free cashflow again and grew its order book during the first half of its financial year as it hopes a recently-completed turnaround plan can propel the company to new heights, but warned it is planning to raise equity in the coming weeks.

The construction and infrastructure group said revenue in the last six months of 2020 declined to £1.6 billion from £1.9 billion the year before as Kier focused on bidding for contracts that offered an ‘appropriate risk/reward’.

However, the company turned to a £29 million operating profit from a £24 million loss, and generated positive free cashflow of £19 million compared to a £30 million outflow last year. It booked a bottom-line pretax profit of £9 million after escaping a £41.2 million loss the year before.  

Kier said its order book stood at £8 billion at the end of 2020, providing revenue transparency over the coming years, and it expects to win more work as the UK government and other regulated industries conduct more work.

The company has now largely completed its turnaround strategy. This will deliver at least £115 million in annualised cost savings by the end of June and significantly improve Kier’s financial performance.

Kier, having now right-sized the business, is aiming to deliver annual revenue of £4.0 billion to £4.5 billion over the medium term with an adjusted operating margin of around 3.5%. That would compare to the £3.5 billion in annual revenue and margin of 1.2% delivered in the last financial year.

It is aiming to convert around 90% of operating profit into cash, allowing it to sustainably invest in the business whilst also introducing a ‘sustainable dividend policy’ with cover at around three times earnings.

Still, Kier Group warned it is aiming to raise around £300 million to £350 million to strengthen its balance sheet. Around £110 million will come from the recent sale of Kier Living that should be completed by the end of June but the rest, between £190 million to £240 million, will be raised in equity ‘in the coming weeks’. That would allow it to secure extensions to from its lenders and help plug the pension deficit.

‘The proposed equity raise, which we plan to launch in the coming weeks, subject to market conditions, together with the continued support of our lending group, will further strengthen the Group's balance sheet by reducing net debt and will facilitate investment in the business to help drive sustainable, profitable organic growth and the achievement of our medium term financial targets.   The second half of the year has started well seeing a continuation of the positive trends of the first half and we are confident of achieving further progress this year in line with our expectations,’ said chief executive Andrew Davies.

Kier Group shares were trading 1.7% lower in early trade at 92.9.

PensionBee eyes £365 million IPO valuation

PensionBee said it has priced its upcoming initial public offering at 165 pence per share, giving it an initial valuation of £365 million as it prepares to start life out as a publicly-listed business.

The company is listing on the High Growth Segment of the Main Market and shares will start conditionally trading this morning under the ticker ‘PBEE’. Unconditional trading will not start until the markets open on April 26.

 The IPO will see it sell 33.3 million new shares to raise £55 million in proceeds while existing investors will rake-in additional cash by selling down some of their existing shares.

‘We are delighted with the strong support that we have received from institutional investors and our customers, who understand the importance of our vision, to simplify pensions so that everyone can look forward to a happy retirement,’ said chief executive Romi Savova.

‘Our achievement is testament to our excellent track record and the strength of the opportunity that lies ahead for PensionBee. Being a publicly traded company will enable us to further develop our customer-focused proposition and to extend our reach to millions of consumers across the UK, whilst continuing to use our voice to make positive changes in the pensions industry,’ Savova added.

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