Today’s updates from Bunzl (LSE: BNZL) and GVC (LSE: GVC) show that the two companies could deliver strong returns in 2017. Their current strategies are working well, and while neither stock is dirt cheap, they offer a mix of improving financial performance and valuations which could rise in future. Now could be the right time to buy them.
Acquisition potential
Distribution and outsourcing company Bunzl has recorded in-line performance in the third quarter of the year. While its top line has failed to rise on an organic basis, when acquisitions are included its revenue is around 5% higher than in the same quarter of the previous year. In fact, 13 acquisitions were made in the first three quarters of the current year, totalling £150m. They have added revenue of around £165m on an annualised basis and should continue to improve the company’s performance.
Looking ahead, there is more scope for acquisitions. Bunzl has a sound balance sheet and has the potential to continue to grow its top and bottom lines via M&A activity. In addition, it should benefit from the continued weakness of sterling. With the impact of exchange rates included, Bunzl’s revenue rose by 15% in the third quarter. This shows that it could be well placed to benefit from Brexit.
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In the last five years, the company has delivered annualised bottom line growth of 8.7%. This consistent performance could hold significant appeal during what may prove to be a volatile 2017, and beyond. I believe that 20% gains could be on the cards, with Bunzl’s consistency, growth potential through acquisitions and the positive impact of a weaker pound likely to be the key catalysts.
Growth potential
While GVC may not be as consistent as Bunzl, I think it offers superior growth prospects. The betting and gaming group today reported that its fourth quarter has been a strong period for the business and it now expects its financial performance for the year to be at the upper end of expectations.
GVC’s group daily net gaming revenue increased by 12% in the fourth quarter of the year, with a particularly strong showing from its Sports division. Its net gaming revenue rose by 19% against what was a tough fourth quarter 2015 comparative. This has led to a rise in the proposed special dividend of 49%. This means that it now equates to 12.5p per share, or 2% of the current share price.
Looking ahead, GVC is expected to record a rise in its bottom line of 73% in the 2017 financial year. That would put it on a price-to-earnings growth (PEG) ratio of just 0.2, which suggests that 20%+ share price gains are quite possible. While the business may lack the consistency of some of its index peers, it offers significant growth potential at a reasonable price and is therefore likely to prove popular among investors.
