1 FTSE 100 stock that could benefit from higher inflation

[ad_1]

Three of the four largest investments in my Stocks and Shares ISA are from the FTSE 100. And one of them is not like the others. 

For most companies, the cost of the products they sell rising is a bad thing. But in this case, it’s actively helpful for revenue growth.

Inflation

Most of the time, inflation is a nuisance for businesses. Rising costs create a difficult dilemma for management teams.

Other things being equal, doing nothing leads to lower profits. But increasing prices to maintain margins risks losing customers. Some rely on switching costs to pass on the effect of higher costs. Others hold down prices and aim to offset these with sales growth.

There are examples of great businesses on each side. And in my Stocks and Shares ISA, I own companies of both types.

One FTSE 100 name, though, has an unusual inflation strategy. That’s Bunzl (LSE:BNZL) – a distributor of consumables.

Cost-plus

Bunzl sells things like packaging, cleaning supplies, and safety equipment. A lot of the time, it does so on a ‘cost-plus’ basis. 

That means its pricing is a fixed percentage of the cost of the goods it sells. And inflation can actually be helpful in that structure.

If costs go up, Bunzl’s sales prices also increase. And since they’re a fixed percentage of costs, profits also go up. 

The bigger challenge is actually the opposite. When commodity prices fall, the firm has to decrease its prices, which can weigh on sales and profits.

That’s what happened in 2025. But it’s not something that I’m not concerned about from a long-term perspective.

Risks 

Higher prices on a cost-plus basis can risk losing customers. But Bunzl has two strategies for dealing with this.

One is encouraging them to shift to own-brand products. This can weigh on revenues, but it increases the firm’s margins. In this situation, both parties benefit. Bunzl maintains its profits and its customers spend less on consumables. 

Another is by offering a unique service. It does this by offering a huge range of products with fast, reliable delivery. That makes switching difficult for customers. And Bunzl reinforces this strength by acquiring other businesses, which increase its scale.

Outlook

Bunzl is expecting moderate revenue growth in 2026. But it anticipates weaker operating margins, for three main reasons. 

One is operating costs – energy and staff – are set to be higher. The ongoing conflict in the Middle East isn’t helping this.

Another is the effect of new contract wins. These helped to offset a major loss in 2025, but they weigh on margins in the short term. With input costs looking stable, Bunzl’s cost-plus contracts aren’t likely to cover this. So there are a few challenges ahead. 

All of these, though, look like short-term issues to me. And I think the company’s key competitive strengths are still firmly intact.

Look closer

At first sight, Bunzl looks like a business with declining profits and limited sales growth. But there’s more going on than this.

Investing well is about seeing beyond short-term macroeconomic challenges. And I think the business is fundamentally strong. The stock is already one of my largest investments.

But I’m keeping a close eye on it in as I look to try and balance my portfolio.

The post 1 FTSE 100 stock that could benefit from higher inflation appeared first on The Motley Fool UK.

More reading

• As the stock market closes in on a correction, where are the buying opportunities?
• A stock market crash feels like it might be imminent

Stephen Wright has positions in Bunzl Plc. The Motley Fool UK has recommended Bunzl Plc. 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.

[ad_2]

Source link