ii view: retailer B&M punished for cautious outlook

Full-year results to 29 March

• Total revenue up 3.7% to £5.6 billion
• Adjusted profit (EBITDA) up 0.6% to £620 million
• Pre-tax profit down 13% to £431 million
• Final dividend of 9.7p per share
• Total ordinary dividend for the year up 2% to 15p per share
• Net debt up 6% to £781 million

Guidance:

• City expects full year ahead adjusted profit (EBITDA) of around £621 million

ii round-up:

B&M European Value Retail SA (LSE:BME) today detailed annual profit that broadly matched City expectations, but with the UK and France focused discount retailer urging caution for the year ahead. 

Revenues for the year to late March rose 3.7% to £5.6 billion, driving a 0.6% increase in adjusted profit (EBITDA) to £620 million. Accompany management comments for the year ahead pointed to increased minimum wage costs and higher employee national insurance taxes as factors impacting performance. Analysts currently expect EBITDA of around £621 million for the year ahead. 

Shares in the FTSE 250 general merchandise and food retailer fell 8% in UK trading having come into these latest results down by close to 40% over the last year. The FTSE 250 index itself is up almost 2% over that time. Fellow retailer JD Sports Fashion (LSE:JD.) is down by a similar amount.

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As of late March, B&M operated 777 variety stores across the UK, along with 343 Heron Food and B&M express stores, and 135 B&M branded outlets in France.

Group net debt for the full year rose 6% to £781 million, with financing costs over the year ahead expected by management to rise. 

The seller of Fast Moving Consumer Goods (FMCG) such as toiletries, confectionary and cosmetics opened 70 gross new stores, consisting of 45 B&M UK stores, 11 in France and 14 Heron Food outlets. 

Pre-tax profit for the year fell 13% to £431 million, hindered by higher interest rates and financing costs. 

Tjeerd Jegen, and former Tesco (LSE:TSCO) executive, joins as the group’s new chief executive on 16 June. B&M’s move to switch its domicile to Jersey as part of a push to offer more flexible shareholder returns is expected to complete by the end of 2025.

A first-quarter trading update is likely to be announced mid-July, with the new boss also expected to detail a strategic review.  

ii view:

B&M came to the UK stock market in June 2014. Today it competes against rivals such as supermarket operators Tesco and Aldi, and even DIY retailers such as B&Q owner Kingfisher (LSE:KGF). The group’s UK variety stores generate most sales during this latest year at 80%, with the balance of 20% split relatively evenly between Heron and its French stores.  

For investors, the difficult economic backdrop for customers including elevated borrowing costs cannot be overlooked. Higher UK business costs now provide an increased headwind. As with all retailers, the weather can influence demand, while its ratio of net debt to adjusted profit (EBITDA), including store leases, increased to 2.56 times from 2.4 times.  

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More favourably, store numbers continue to grow. A diversity of product and geographical location exists, with potential to increase French store numbers. A move in its corporate domicile is expected to increase flexibility towards shareholder returns, while a forecast dividend yield of around 4.6% is not to be overlooked.

In all, B&M’s value focused customer offering in difficult economic times is likely to make its shares interesting. That said, more cautious investors may decide to await a more progressive profit performance, and hear what the new CEO has planned.

Positives: 

• Diversified product range
• Previous payment of special dividends

Negatives:

• Uncertain economic outlook  
• Exposure to currency movements 

The average rating of stock market analysts:

Buy