(Sharecast News) - RBC Capital Markets downgraded Bunzl on Wednesday to 'underperform' from 'sector perform' and cut the price target to 2,550p from 2,850p as it said deflationary forces are building.
"In light of the sharp declines in raw material pricing which we believe underpins the bulk of Bunzl's product portfolio, we cut our organic revenue growth assumptions and now assume a modest organic decline in FY24, with limited recovery in FY25," RBC said.
"Bunzl's share price has disconnected from a composite index of the global chemicals and paper & packaging sectors to which it has historically been highly correlated, and we see scope for both consensus earnings pressure and valuation multiple compression."
Elsewhere, Citi said it was opening a "positive catalyst watch" on educational publisher Pearson as it thinks the first-half results at the end of July will act as a positive catalyst.
"Central to our view is: (a) the prospect of a 1H beat on adjusted operating profit which is a function of the progressive mix shift toward A&Q; (b) the potential for an upgrade to FY guidance and, with that, an upgrade to FY consensus earnings supported by our contention that there is still circa £60m of 'missing profit' from the pandemic; and (c) a view that the buyback will begin after the 1H results and by September at the latest," it said.
It added that with Pearson's shares down 11% year-to-date - underperforming the UK market by 11% and defensive growth peers like Relx and Informa by 20%-27% - and the group on just 13.5x prospective price-to-earnings, the risk/reward "tilts positively".
Bunzl (BNZL)
Pearson (PSON)