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Forget a cash ISA! I think this is one of the best UK shares to buy now

Kevin Godbold
·3-min read
Graph Falling Down in Front Of United Kingdom Flag
Graph Falling Down in Front Of United Kingdom Flag

With the interest rates paid by cash ISAs taking another lurch down recently, there isn’t much advantage to the savings vehicle anymore. But many shares are paying useful and growing dividends. I’d rather put money in a Stocks and Shares ISA. And within it, I reckon Bunzl (LSE: BNZL) is one of the best UK shares to buy now.

Why I reckon Bunzl is one of the best UK shares to buy now

The FTSE 100 company trades as a specialist international distribution and services provider. In some ways, the company provides a service that keeps the wheels of industry turning. Businesses and organisations turn to Bunzl when they need the non-food and not-for-resale products they use themselves, such as chemicals, safety consumables, bandages, gloves, labels, films, grocery, packaging, and products for cleaning and hygiene.

What impresses me is the resilience of the business. Indeed, Bunzl has a long, multi-year record of generally rising revenue, earnings and cash flow. And the directors seem proud when they speak of the firm’s unbroken 27-year record of annual rises in the shareholder dividend. And I’m optimistic that record will continue in the years ahead, which is why I was so keen to see today’s trading update from the company.

The update covers the period from 30 June. The directors report “strong” overall growth over a “challenging” period. Indeed, underlying revenue in the third quarter increased by 8% year on year at constant currency exchange rates. Given the Covid-19 pandemic, I reckon that’s a remarkable performance when we consider how many other businesses have been struggling.

Indeed, Bunzl is something of a coronavirus gainer. Sales have been driven higher by demand for masks, sanitisers, gloves, and disinfectants. But organic growth isn’t the whole story. Acquisitions contributed 4%, including the recent addition of MCR Safety, at the beginning of September. That investment continues a long history of bolt-on acquisitions that have helped Bunzl grow like a seemingly unstoppable snowball.

A robust outlook

As if the news isn’t already good enough, the directors point out in the report the third quarter had fewer trading days than the comparable period in 2019. The effect of that was to reduce the revenue-growth figure by 3.2%.

Like many successful distributors, Bunzl has developed big lines in own-brand products. And 17.5% of the growth in revenue came from the top eight Covid-19-related products, which are “primarily own-brand”. The directors reckon that growth more than” off-set a 9.5% decline in revenue from other products. But to put that in context, the decline in revenue from other products was less than the decline in the second quarter. The directors reckon that reflects the easing of pandemic-related restrictions.

Looking ahead, the company acknowledges the uncertainty regarding the ongoing pandemic. Nevertheless, it expects revenue in the second half of the year to grow “strongly” and the profit margin will likely be “slightly higher” in the second half.

Meanwhile, with the share price near 2,589p, the forward-looking earnings multiple for 2021 is just below 20 and the anticipated dividend yield is a little over 2%. I see this as a decent long-term hold in a diversified portfolio.

The post Forget a cash ISA! I think this is one of the best UK shares to buy now appeared first on The Motley Fool UK.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2020