Interactive Investor

ii view: no surprises at discount retailer B&M

29th June 2022 11:12

Keith Bowman from interactive investor

Shares for this FTSE 100 retailer are down around 40% during 2022. We assess prospects.

First-quarter trading update to 25 June

  • Total currency adjusted group revenue down 2.2%   

ii round-up:

Value goods and food retailer B&M European Value Retail SA (LSE:BME) today reported few if any surprises given the announcement of its annual results in late May.

Total currency adjusted group revenue fell by 2.2% during the first quarter. Same store UK sales fell by nearly a fifth in April as they contrasted with pandemic fuelled trading the year before. Sales returned to more normal trading through May and June, falling by just 1.6%. Previous guidance for full-year adjusted profit of between £550 million to £600 million was left unchanged.

B&M shares rose by around 2% in UK trading having come into this latest update down around 40% year-to-date. Shares for Amazon (NASDAQ:AMZN) and Ocado (LSE:OCDO), who also both benefitted from the pandemic, are down around 35% and 50% respectively in 2022. The FTSE All World index has fallen by almost a fifth year-to-date. 

Total sales for both B&M’s Heron Foods and French discount stores grew by 11% and 33% respectively year-over-year. Strong like-for-like sales in France were aided by demand for gardening and leisure products. Total Heron food stores across the UK now total 311, up from 308 a year ago. Stores in France number 109, up from 105 in the first quarter of last year. 

B&M in late May appointed chief financial officer Alex Russo as its new chief executive, replacing the highly experienced Simon Arora. 

ii view:

B&M Group was founded in 1978 and listed on the London Stock Exchange in June 2014. It currently operates 705 general UK stores alongside its portfolio of UK Heron food stores and French discount outlets. The departing chief executive Simon Arora has led the company for the past 17 years. The newly appointed Alex Russo, who joined B&M in October 2020, has previous senior leadership experience at Tesco (LSE:TSCO), Asda and Kingfisher (LSE:KGF)

For investors, an uncertain economic outlook and a cost-of-living crisis for consumers make for a tough backdrop. The previous loss of its chief executive of over a decade cannot be brushed aside, while costs for businesses generally are on the rise.  

On the upside, its store numbers are expanding, with over 900 B&M UK general stores targeted compared with 705 currently. Its track record for controlling costs is strong, while a forecast future dividend yield of around 4% is not derisory in an environment of still low if rising interest rates. On balance, and with its discount offering potentially becoming even more appealing in tougher times for consumers, investors are likely to stick around. 

Positives: 

  • Diversified product range
  • Expanding store numbers

Negatives:

  • Uncertain economic outlook  
  • Exposure to currency movements 

The average rating of stock market analysts:

Strong hold

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