Interactive Investor

ii view: B&M details growth during golden quarter

Selling food and general goods both here and across the channel. We assess prospects for this major FTSE 100 retailer.

9th January 2024 15:45

Keith Bowman from interactive investor

Third-quarter trading update to 23 December

  • Total revenue up 5% to £1.64 billion
  • On track to open 76 gross new stores across the group during full-year 2024
  • Declared a special dividend of 20p per ordinary share

Guidance:

  • Continues to expect full-year adjusted profit of between £620 million and £630 million, up from £573 million last year

Chief executive Alex Russo said:

“The performance across the Golden Quarter has been pleasing, with strong operational execution across the three businesses. 

“Our strategy remains unchanged - we are an everyday low-price discounter with a laser-focus in keeping excellence in retail standards and our costs the lowest.”

ii round-up:

Retailer B&M European Value Retail SA (LSE:BME) today reiterated its full-year profit hopes, with strong sales growth for its UK food and French shops countering slower growth for its core UK variety outlet.

French and Heron Food sales growth of just over 11% each compares with a gain in UK store sales of 3.7%, leaving total group sales up 5% year-over-year at £1.64 billion. That’s shy of City estimates for growth of 5.6%. 

Shares in the FTSE 100 company fell around 2% in UK trading but later recovered to trade flat. That follows a 36% increase during 2023. That’s similar to gains made by both Tesco (LSE:TSCO) and Sainsbury (J) (LSE:SBRY) over 2023 and comfortably ahead of a 3.8% improvement for the FTSE 100 index itself. 

B&M currently operates 717 variety stores across the UK, along with 331 Heron Food and B&M express stores and 122 outlets in France. Management hopes to open a further 76 stores across the portfolio this financial year, helping push adjusted profit to between £620 million and £630 million and up from last year’s £573 million. 

As previously seen, and in line with its capital allocation policy, the retailer declared a special dividend of 20p per share to be paid to all eligible shareholders on 9 February. 

Group net debt as of its previous half year results, fell 5% to £700 million. Full-year results are likely to be announced in early June. 

ii view:

Coming to the UK stock market in June 2014, B&M is today a constituent of the FTSE 100 index which employs over 30,000 people. Geographically, the UK generates most of its sales at just over 90%, with France the balance. A current stock market value of around £5.6 billion is similar to Marks & Spencer Group (LSE:MKS) although below Primark owner Associated British Foods (LSE:ABF) at £17.8 billion. 

For investors, elevated borrowing costs are likely to have contributed towards a slowing in sales from 6.2% in the first half to 5% this quarter. Eyebrows were raised when B&M announced in December the 2.8% part sale of shares held by the founding Arora family which left a balance of 3.4%. An estimated price/earnings ratio above the three-year average also suggests the shares are not cheap.   

On the upside, store numbers continue to grow, with its previous acquisition of around 50 Wilko stores helping increase its target for UK B&M stores to at least 1,200 from a prior target of 950. Meanwhile, less than 125 stores in France gives room for further growth. Group net debt of £700 million remains within management’s comfort zone, while the shares excluding special dividends currently offer a forecast dividend yield of close to 3%.   

In all, and while some caution looks sensible, B&M’s core focus on product value and expanding store numbers should keep investors happy.  

Positives: 

  • Diversified product range
  • Both UK and French store outlets

Negatives:

  • Uncertain economic outlook  
  • Exposure to currency movements 

The average rating of stock market analysts:

Buy

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