The hunt for bargains has become more acceptable in these difficult times, and it has helped increase the UK’s stock of discount retailers
B&M European Value Retail
42%, to 498 pence ($ 6.65), over the past six months.
The FTSE100 stock (ticker: BME.UK), which sells low-cost personal care products, groceries and seasonal items such as gardening tools and Christmas decorations, has expanded its appeal to richer middle-income customers, increasing its average spending. per transaction.
B&M also benefited from surging sales of food, home decor and furniture during a pandemic because it stays open during a lockdown as an important retailer.
In September, B&M raised its adjusted half-year Ebitda guidance (income before interest, taxes, depreciation and amortization) to British pounds 285 million from around £ 250 million to £ 270 million. It booked £ 295.6 million higher for it half year renewal, with a separate £ 250m special dividend. Adjustments eliminate the advantages or disadvantages of one-time events, such as profits from sales and warehouse leaseback.
Historically, B&M’s growth stems from an ambitious store opening program, which has seen retailers thrive in the UK and France. It has 657 stores in September, and usually opens 40 stores a year.
Even though the stock is up 18% this year, it has been trading at a discount on concerns whether B&M can maintain that momentum due to constraints on a suitable location.
A November report by Richard Chamberlain, an analyst at RBC Capital Markets, suggests such concerns are unfounded. His notes, which include research from data scientists, suggest that there is sufficient capacity to roll out a fair amount of new storage over the next seven years.
Chamberlain has marked the stock Outperform, expecting a 16% increase to hit its 580 pence target. “We think the market has overstated the possibility of waning profitability for B&M in 2021, and its long-term space potential in the UK,” he said.
“Our data science work shows that B&M offers a strong launch story in the UK, and we see an upward risk for consensus earnings before tax forecasts for this year and next.”
He points to B&M’s product range – it replaces its top 100 performing products on a regular basis – and the benefits of most of the products that are sourced directly, which will see it gain more market share.
Ben Hunt, an analyst at Investec Securities, was even more bullish, expecting a 26% increase to 630 pence.
B&M, registered in tax-efficient Luxembourg, employs about 34,200 and has a market value of £ 4.8 billion. It took 14.8 times the revenue expected this year and was valued at a 10% discount to its peers.
It posted pre-tax adjusted profit of £ 260 million for the 52 weeks ended March 28, 2020, up from £ 252.4 million from the previous year. It has sales of £ 3.8 billion.
B&M co-founder and CEO Simon Arora said in a recent statement: “We are well positioned for the golden quarter. [the holiday shopping season] in our premier UK B&M shop business. Despite the continuing uncertainty in the general economic environment, we are very proud to say that each of the top five store opening days in our history are all in stores we have opened in the last 12 months. “
Arora, a Cambridge University law graduate, founded Orient Sourcing Services with brother Bobby in 1995, selling soft furniture to retailers Argos and BHS. They sold the business, and in 2004 bought B&M, which has 21 discount stores with a turnover of £ 65 million. They grew to 300 stores in just seven years, with sales of £ 1 billion, and started trading stock in
London Stock Exchange
Key to continued growth is the launch of new stores, and RBC Chamberlain estimates B&M’s potential for additional UK locations, using population and consumer income criteria.
“Our base case shows the potential for at least seven more years of growth at the current expansion rate (net 40 or more per year),” he said, arguing the 10% to 15% consensus was too low. “Historically, its P&L has been driven more by space growth, which should be key to its long-term ranking.”
Greg Lawless, an analyst at Shore Capital, said in a November note that the company “clearly benefited from the status of an important retailer and has experienced a pullback during the lockdown. B&M has been a definite Covid winner,” and interested new customers are “very stiff”.
The increased contribution from France, the efficiency of the new warehouse, and the non-recurring costs associated with Covid-19 mean discounters can trade at a discount.