Shares in Bunzl gain 1.6 percent, topping the list of FTSE 100 risers with traders citing Citigroup’s ratings upgrade of the business services firm to “buy” on valuation grounds.
In a broader note on business services firms, Citigroup says Bunzl’s 11 percent 3 month relative underperformance has returned valuation to an attractive level.
“2013E volume growth should remain robust with cost efforts and UK recovery offsetting product deflation margin drag,” says the investment bank in a note.
“Bunzl remains one of our sector’s ‘Cash Flow Kings’, partly thanks to its attractive working capital dynamics, and we’re confident it can continue to drive double digit post-tax bolt-on returns while growing its dividend by 10 percent per annum,” it says.
On the broader business services sector Citigroup backs structural growers and high cash converters in a lower growth world abundant with macro risk, and remains cautious on cyclical names with heavy euro zone exposure.
It most keen on Aggreko, Bunzl, Capita, Intertek and Serco, while its least favoured stocks include Adecco, Randstad, Electrocomponents, Premier Farnell and Rentokil.
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