Morning Note: Market News and an update from distributor Bunzl.

Market News

The market continues to digest last week’s surprisingly dovish comments by Jerome Powell – Traders are currently pricing in just over 50bps of interest rate cuts this year. Donald Trump moved to oust Fed Governor Lisa Cook after allegations she falsified documents on mortgage applications. Cook said she won’t quit as “no cause exists” for her dismissal. The dollar fell and the Treasury curve steepened as Trump’s announcement intensified concerns about Fed independence. Gold moved up to $3,375 an ounce.

French bond futures extended losses in Asia after PM Francois Bayrou called a confidence vote for 8 September that may topple his government.

US President Donald Trump threatened to impose fresh tariffs and export restrictions on advanced technology and semiconductors in retaliation against other nations’ digital services taxes that hit American technology companies

Brent Crude trades at $68 a barrel. Orsted fell heavily yesterday following the US government halted a wind farm project. The company is set to meet investors before its rights issue. Connecticut’s governor pledged to work with the Trump administration to revive the company’s wind project, while the White House moves to block another wind development near Maryland.

US equities drifted lower last night – S&P 500 (-0.4%); Nasdaq (-0.2%). Nvidia is scheduled to release its results tomorrow. In Asia this morning, equities were also weak: Nikkei 225 (-1.0%); Hang Seng (-1.1%); Shanghai Composite (-0.4%). The FTSE 100 is currently 0.5% lower at 9,271, while Sterling trades at $1.3455 and €1.1575. UK food prices rose 4.2% in August from a year earlier, the biggest gain since February 2024, the BRC said.

Source: Bloomberg

Company News

Bunzl has released results for the first half of 2025 which were in line with expectations. The company highlighted that operational performance improvement remains on track in a challenging environment. The company has reiterated its guidance for 2025 driven by an expectation for improved performance in the second half. In response the shares have been marked up by 6% in early trading.

Bunzl is a specialist international distribution and services group. The company provides an efficient and cost effective one-stop-shop solution to enable its customers to reduce or eliminate the ‘hidden’ costs of sourcing and distributing a broad range of goods that are essential to the successful operation of their businesses but which they do not themselves resell – think disposable tableware, rubber gloves, and plastic trays. The strategy is to expand the business through organic growth, consolidating markets through focused acquisitions, and continuously improving operating efficiency. The group is also supporting customers looking to transition towards packaging better suited to the circular economy, with around half of Bunzl’s packaging sales made from alternative materials. The group now processes around three quarters of orders digitally, supporting customer retention and enhancing operational efficiency.

Back in April, the group warned of a more challenging economic backdrop. In response, the company lowered its full-year guidance, reduced its borrowing target, and halted its share buyback programme. At the time, the shares were marked down by 25%.

Today’s statement highlights that the macroeconomic backdrop remains uncertain, and the group is trading in-line with management expectations. Actions are underway to improve performance in the group, particularly in its largest business in North America and in Continental Europe. Bunzl continues to drive operating efficiencies with 16 warehouse consolidations and relocations, alongside continued investments into digital solutions and automation

In the first six months of 2025, revenue rose by 4.2% at constant exchange rates (CER) to £5.8bn, in line with company guidance. Adjusted for acquisitions, underlying revenue was broadly flat in a challenging operating environment. Approximately 30% of revenue was delivered through the sale of own brand products, while the company processed 75% of orders digitally, supporting customer stickiness and increasing low touch customer ordering.

Underlying revenue fell by 1.2% in North America (the group’s largest division, 53% of revenue), while adjusted operating profit declined by 14.7% driven by execution challenges in the largest business that primarily services foodservice and grocery customers. Continental Europe revenue rose by 2.3%, although profit fell by 9.9%, held back by ongoing deflation in France. Elsewhere, revenue in the UK & Ireland and the Rest of the World rose by 0.3% and 5.6%, respectively.

Group adjusted operating profit fell by 7.6% at CER to £404.5m. The operating margin slipped from 8.0% to 7.0%, driven by specific large businesses in North America and Continental Europe. Adjusted EPS declined by 10.6% at CER to 77.8p.

Cash conversion (97% of operating profit) and the balance sheet remain robust. Given the macroeconomic uncertainty, the company believes it is prudent to be around the lower end of its target leverage range of 2.0x to 2.5x adjusted net debt to EBITDA. At the end of June, leverage was 1.9x. The buyback programme was paused in April, with £114m of shares purchased up to that point. It has since resumed with the intention of completing the remaining £86m of the previously announced £200m programme in the second half of the year. The company has also announced a 0.5% increase in its half-year dividend to 20.2p. The company has grown its payout for 32 years in a row; the yield is currently 3%.

In August 2024, the group made a commitment to allocate c. £700m p.a. primarily to be invested in value-accretive acquisitions to supplement growth. In the year to date, seven deals have been announced for £120m and the pipeline remains active. This morning the company has announced the purchase of Quindesur (Spanish distributor of foodservice and cleaning & hygiene products) and Guantes Internacionales (leading PPE distributor in Mexico).

Looking to the full year, the group continues to expect moderate revenue growth, at constant exchange rates, driven by announced acquisitions and broadly flat underlying revenue. Group operating margin for the year is expected to be moderately below 8.0%, compared to 8.3% in 2024. The group’s second half operating margin is seasonally higher and expected to benefit from actions taken to improve operational performance.

Source: Bloomberg