Bunzl plc, the UK-based distributor of disposable products such as toilet rolls and plastic cutlery, remains a company with long-term growth prospects despite a recent downturn in its share price and pressure from activist investor Elliott Management. The FTSE 100 firm, valued at approximately £10.6 billion, experienced one of the worst stock performances in the index last year, prompting Elliott to propose several strategic changes aimed at boosting shareholder value.

Elliott has urged Bunzl to resume its share buyback program, which the company halted last year — the first FTSE 100 constituent to do so in five years. The activist investor suggests the company should repurchase up to 10% of its outstanding shares during the next year, capitalizing on the current discount at which the shares trade compared to historical levels.

However, Bunzl has historically prioritized acquisitions as its primary growth driver, having invested more than £6 billion in nearly 250 acquisitions over the past two decades. These acquisitions have accounted for the majority of the group’s expansion. The company has also maintained a steady increase in dividends for 33 consecutive years. Analysts note that undertaking an extensive buyback program, estimated at around £800 million, could push Bunzl’s net debt to nearly three times its earnings before interest, taxes, depreciation, and amortization (EBITDA), limiting the firm's financial flexibility for future acquisitions.

While the pace of acquisitions has slowed—last year’s deal volume was half of the previous two years—some experts caution against reclassifying Bunzl as a utility-style company focused solely on returning cash to shareholders. Before last year’s decline, Bunzl had delivered slightly better than the FTSE 100’s average total return of 6% per annum over the previous decade.

Another key recommendation from Elliott involves spinning off Bunzl’s North American division, which accounts for just over half of the company’s sales and generated a forecasted £430 million in operating profit. Elliott views this as an opportunity to unlock separate value, citing that comparable North American peers trade at roughly 16 times operating profit, which would imply a valuation of nearly £7 billion for the division—about two-thirds of Bunzl’s current enterprise value. However, there is concern that separating the North American business could disrupt the group’s global sourcing advantages.

While activist investors and private equity firms often target steady, undervalued businesses, Bunzl’s strategy and market position pose challenges to such an approach. Analysts suggest that while share buybacks may warrant consideration if acquisition opportunities diminish, a single underwhelming year should not overshadow the company’s consistent long-term performance. As a supplier of essential disposable products to shops and foodservice outlets, Bunzl continues to operate a resilient and enduring business model.