ii view: B&M shares hit 7-month high on sales beat and special dividend

This FTSE 100 discount retailer is down over the last year following a buoyant pandemic performance, but it could be a recession winner. We assess prospects. 

Third-quarter trading update to 24 December

• Total revenue up 12.3% to £1.57 billion
• UK like-for-like revenue up 6.3%
• Special dividend of 20p per share

Guidance:

• Now expects full-year adjusted profit of £560-£580million, compared to a previous £550-£600 million

Chief executive Alex Russo said:

"Our strong momentum throughout the Golden Quarter across the businesses demonstrates the strength of our unchanged strategy to relentlessly focus on price, product and excellence in retail execution. 

“Despite the challenging macroeconomic environment, we will continue to work hard to help both existing and new customers manage the cost-of-living crisis. The business has exited the quarter well and will remain focused on disciplined execution."

ii round-up:

Value goods and food retailer B&M European Value Retail SA (LSE:BME) today announced another special dividend payment as the company detailed sales which beat City forecasts. 

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Third-quarter sales to the 24 December rose 12.3% to £1.57 billion, surpassing analyst estimates for more modest growth of 5%. The UK and French discount chain also detailed plans to pay a special dividend of 20p per share to eligible shareholders. Adjusted profit for the year is now expected to come in at between £560 million and £580 million compared with a previous forecast range of £550 million to £600 million.

B&M shares rose by close to 2% in UK trading having come into this latest update down by a third over the last year. That’s similar to shares price falls seen at both Kingfisher (LSE:KGF) and Halfords Group (LSE:HFD), which had also benefited from trading under the pandemic.  

Same store sales for B&M's 705 UK general stores rose 6.4% compared to the Christmas quarter last year, with total sales for its 315 Heron discount food stores gaining by more than a fifth to £129 million. Revenue at its 113 French store outlets rose by almost a quarter year-over-year to £136 million. 

The special dividend is to be paid to eligible shareholders on 3 February and follows a special dividend of 25p per share paid in early 2022. 

ii view:

Founded in 1978 with its first store opening in Blackpool, B&M today operates over 1,100 general and food discount stores across the UK and France. A constituent of the FTSE 100 index since September 2020, its current chief executive, who joined in October 2020, previously held senior positions at Tesco (LSE:TSCO), Asda, and Kingfisher. 

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For investors, an uncertain economic outlook including rising interest rates, provides for a difficult consumer backdrop. Costs generally for businesses are rising, UK tax increases are being made to help cover elevated government borrowing, while broader global supply chain issues remain.

More favourably, the company plans to expand store numbers, with over 900 B&M UK general shops targeted compared 705 currently. Group net debt compared to adjusted profit at its half-year results remained comfortably below management’s stated ceiling, while the shares offer an estimated future dividend yield of around 3.5%, excluding special dividends. 

On balance, and while some caution looks sensible, a strong focus on consumer value and continued special dividend payments makes B&M interesting. 

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:

Strong hold