Interactive Investor

ii view: pandemic spend behind boom at B&M

29th September 2020 16:02

Keith Bowman from interactive investor

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Budget retailer B&M European Value Retail is worth more than Sainsbury's and Morrisons and continues to attract investors. 

First-half trading from 29 March to 26 September

  • Revenue up 25%

Guidance: 

  • First-half adjusted profit of £285 million expected, up from between £250 million and £270 million 

Chief executive Simon Arora said:

"Our Group has performed well in the first half. Our business model is proving well-attuned to the evolving needs of customers, given our combination of everyday value across a broad range of product categories being sold at convenient out-of-town locations.

"Our people have risen to the many challenges posed by the Covid-19 crisis, not least in serving our customers through a period of high demand, keeping our shelves filled, providing a clean and safe shopping environment, as well as sourcing higher volumes than we had planned. I thank them all for their commitment, hard work and resilience."

ii round-up:

Value retailer B&M European Value Retail (LSE:BME) today raised its estimate for half-year profit ahead of pending November results, driven by bigger average customer spends under the pandemic. 

In an unscheduled half-year trading update, it flagged an expected first-half profit of £285 million, up from a previous estimate of between £250 million and £270 million. 

B&M shares rose by around 5% in UK trading having risen by a quarter year-to-date. Shares for AB Foods (LSE:ABF) and owner of discount clothing retailer Primark are down by around a quarter, while shares of retailing giant Tesco (LSE:TSCO) are down by 15%. 

Total B&M sales rose by 25% in the period, outpacing analyst expectations nearer to 20%. Same store sales for its UK outlets rose by 23%, while sales on the same basis for its French Babou outlets were described as positive since reopening on 11 May. 

The group operates over 600 UK B&M general merchandise and grocery stores, more than 275 Heron food convenience stores, and over 90 Babou French general merchandise and grocery stores. 

Nine new B&M UK stores opened during the period, while it closed eight mainly smaller, older stores. Total new UK B&M stores for the year are expected to total between 40 and 45. 

Broker Morgan Stanley now expects pre-tax profit expectations for rise by around 6%, with a current Bloomberg-compiled consensus sitting at £376 million. 

First-half results are scheduled for 12 November.

ii view:

Founded in 1978 with a first store in Blackpool, today B&M operates both general merchandise & grocery or food convenience stores in the UK and France. A stock market value of just over £5 billion comfortably exceeds both Sainsbury's (LSE:SBRY) and Morrisons (LSE:MRW) and is more than twice that of Marks & Spencer (LSE:MKS). B&M hit the headlines back in 2013 when former Tesco head Sir Terry Leahy was appointed as chairman, going on to serve until early 2018.

For investors, rising coronavirus cases in both the UK & France inject some uncertainty, as potential for additional social restrictions, and even further full lockdowns, remain. But an estimated dividend yield of over 2% (not guaranteed) is not to be dismissed in the current low interest-rate environment, while a prospective price/earnings ratio of below 20 is under the three-year average, suggesting the fast-rising shares could have further to run. 

Positives: 

  • Diversified product range
  • Five years of consecutive dividend growth

Negatives:

  • Covid clouded outlook
  • Exposure to currency movements 

The average rating of stock market analysts:

Buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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