RBC Capital upgrades B&M to ‘outperform’

RBC Capital Markets upgraded B&M European Value Retail on Monday to ‘outperform’ from ‘sector perform’ and hiked the price target to 550p from 460p, citing an undemanding valuation versus peers, among other things.

"B&M is still trading at a discount to domestic and particularly international peers, yet should offer amongst the highest, most durable growth in the sector, driven by positive LFLs and space expansion," RBC said.

B&M trades at 13.5x CY23E price-to-earnings and offers a dividend yield of around 4%, RBC noted.

"In our view, it remains cash generative, and we expect it to continue to look to return surplus cashflow to shareholders. We see potential for B&M to achieve a gradual re-rating as it delivers consistently positive LFL sales growth (as higher rated Dollar General has done in the US) and as the growth of France and Heron Foods become better appreciated by the market."

The bank said it was raising its FY24-25 pre-tax profit forecasts by 4-7% due to its expectation of higher, price-driven LFL sales growth, along with a gradual ramp-up in UK space growth.

"In our view, there may also be opportunities, for B&M to buy a package of new stores from later this year," it said.

"Our survey work suggests B&M remains very price competitive, and we feel store standards have become more consistent, with further potential upside here."

At 1315 GMT, the shares were up 0.9% at 493.50p.