Unraveling Bunzl's (LON:BNZL) Decelerating Rates Of Return: A Closer Look

Bunzl plc (LON:BNZL), a specialist international distribution and services group, has seen a deceleration in its return on equity (ROE) over the past year, falling from 18.5% in 2022 to 17.86% in 2023. This decline has raised concerns among investors, prompting a closer examination of the company's acquisition strategy, operational efficiency, and industry trends. This article delves into the factors contributing to Bunzl's decelerating rates of return and provides insights for investors to consider.

Bunzl's acquisition strategy has been a significant driver of its growth and market share expansion. Over the past four years, the company has committed to a total acquisition spend of £1.7 billion, with 19 acquisitions agreed in 2023 alone. This strategy has helped Bunzl enter new markets and consolidate fragmented ones, contributing to its record operating margin of 8.0% in 2023. However, a closer look at the company's acquisitions reveals a mixed bag of results.

While some acquisitions, such as the acquisition of Pamark Group in Finland, have been successful, others, like the UK healthcare business disposal, have negatively impacted revenue growth. This disparity highlights the importance of careful due diligence and strategic integration of acquired businesses. Bunzl's peers, such as Compass Group and Rentokil Initial, have also expanded through acquisitions but have maintained higher return on invested capital (ROIC) and revenue growth rates, suggesting that a well-executed acquisition strategy can drive long-term success.

Operational efficiency improvements and cost-cutting measures have played a crucial role in maintaining Bunzl's profitability and return on investment. The company's operating margin reached a record high of 8.0% in 2023, up from 7.4% in 2022. However, the recent decline in ROE suggests that further efficiency gains may be necessary to bolster shareholder value. Bunzl's peers have also focused on operational efficiency, with Rentokil Initial successfully implementing cost-cutting measures to improve its operating margins.

Industry trends in distribution and services also influence Bunzl's growth trajectory. Global economic conditions and market dynamics shape the competitive landscape, affecting the success of Bunzl's acquisition strategy and operational efficiency initiatives. For instance, the increasing demand for e-commerce and the associated pressure on logistics services can both positively and negatively impact Bunzl's performance. A balanced approach to growth, combining strategic acquisitions and organic growth strategies, can help Bunzl navigate these factors and drive long-term growth.


In conclusion, Bunzl's decelerating rates of return raise important questions about the sustainability of its acquisition strategy and the need for further operational efficiency gains. By learning from its peers, adapting its acquisition strategy, and focusing on a balanced approach to growth, Bunzl can potentially re-accelerate its growth and returns. Investors should closely monitor Bunzl's progress and consider its strategic moves as it seeks to maintain its competitive edge in the distribution and services industry.