ii view: B&M European Value Retail's dividend is special

A value product offering, a near doubling in profits and a special dividend. There's lots to like here.

First-half results to 26 September

• Revenue up 25% to £2.24 billion
• Adjusted profit up 95% to £296 million
• Interim dividend up 59% to 4.3p per share
• Paying a special dividend of 25p per share

Guidance:

• Sales growth for B&M UK is expected to moderate over the second-half

Chief executive Simon Arora said:

"The Group delivered a strong performance in the first half, with our business model proving well-attuned to the evolving needs of customers.  Our combination of everyday value across a broad range of product categories and convenient Out of Town locations has proved popular with shoppers. 

“Despite the wider economic uncertainty and ongoing restrictions related to Covid-19, we remain confident in our business model and future prospects."  

ii round-up:

Value goods and food retailer B&M European (LSE:BME) has posted results broadly in line with its recent trading update, but also appeared to underline its confidence in the outlook with a retail dividend bonanza. 

Along with hiking the half-year dividend payment by 59% to 4.3p, it also declared a special dividend of 25p per share, returning a surplus £250 million to shareholders. 

B&M shares, which only entered the FTSE 100 index back in September, retreated by just over 2% in UK afternoon trading, having gained by around a fifth year-to-date. B&M, whose stores remain open as its also sells food, now has a stock market value which exceeds both Sainsbury's (LSE:SBRY) and Morrisons (LSE:MRW). 

B&M’s adjusted profit for the period almost doubled to £296 million, slightly exceeding its prior estimate of £285 million. A 25% gain in overall sales matched its late September trading update, as did a 23% improvement in UK like-for-like sales. Bigger than average customer spends under the pandemic helped play a part, along with a desire for value given Covid constrained incomes. Sales at Babou, the French retail chain it bought in 2018, have proved positive since reopening in mid-May, although fell by 2.4% for the period.

The group operates over 650 UK B&M general merchandise and grocery stores, more than 290 Heron food convenience stores and over 100 Babou French general merchandise and grocery stores. It created over 1,800 new jobs in the half-year along with repaying the £3.7 million furlough support originally received at the height of the crisis. 

ii view:

Founded in 1978, with its first store opening in Blackpool, today B&M operates both general merchandise & grocery or food convenience stores in the UK and France. B&M hit the headlines back in 2013 when former Tesco (LSE:TSCO) head Sir Terry Leahy was appointed as chairman, going on to serve until early 2018. A stock market value of just under £4.9 billion recently propelled the company into the UK’s leading FTSE 100 index and is also more than twice that of Marks & Spencer (LSE:MKS). 

For investors, management's second-half caution cannot be ignored, despite the third quarter to date proving similar to the first half. The continuing uncertainties of Covid-19 should also not be dismissed. However, today’s dividend announcements bring the income yield, including the special dividend, to over 5%, while a prospective price/earnings ratio of below 20 is under the three-year average, suggesting the shares may have further to run.   

Positives: 

• Diversified product range
• Five years of consecutive dividend growth

Negatives:

• Some cautious sales outlook comments  
• Exposure to currency movements 

The average rating of stock market analysts:

Buy