Citi upgrades B&M from 'neutral' to 'buy'

Citi has upgraded its rating on discount retailer B&M from 'neutral' to 'buy', saying the stock could stand to benefit from a resilient consumer landscape.

"Notwithstanding our forecasts for the strength of the UK’s wage growth to fade and for unemployment to rise, our Household Available Cashflow (HAC) analysis of (nominal) discretionary demand suggests the UK will narrowly avoid a ‘consumer recession’," Citi said in a research note on Tuesday.

The bank expects HAC to grow by 1.8% in 2024 – comprising 3.4% growth in the first half slowing to just 0.2% in the second – easing to 1.1% in 2025.

"With expectations for positive but sub-trend growth, we upgrade B&M [...] noting the quasi-defensive nature of its value-led proposition and c.5% per annum space runway in a category with a 10-year trailing CAGR of 10%," the bank said.

Based on a price-to-earnings ratio of 15x, Citi has set a new target price for the stock of 640p, up from 540p previously, estimated a total shareholder return of 14-16% for the years ending March 2025 and March 2026.

The bank added that B&M's recent bond issuance also paves the way for the continuation of its special dividends.

The shares were more or less flat at 550.6p by 1018 GMT.