Shore Capital upgrades B&M to ‘buy’ on Wilko deal

Shore Capital upgraded B&M European Value Retail on Wednesday to ‘buy’ from ‘hold’ and lifted the fair value to 640p from 560p on news that the discount retailer will buy up to 51 Wilko stores for £13m.

It said the acquisition is expected to enhance B&M’s presence and growth potential.

"While the exact details about the acquired stores and the integration process remain to be clarified at the interim results in November 2023, we expect that B&M's acquisition of these stores could provide a significant boost to the company's growth," the broker said.

"This acquisition aligns with B&M's plans for expansion, as we anticipated that the stores will be rebranded under the B&M fascia. The move should accelerate the store rollout in an accretive way, and the ultimate ambition of 950 stores in the UK could be extended, in our view."

Shore said its conservative assumption is that around 10 Wilko stores will be converted to the B&M fascia per quarter, starting from FY24F Q4.

"Such a conversion strategy is expected to contribute to an upgraded top-line growth of 3% and 6% for FY25F and FY26F, respectively."

The broker said that based on its new estimates, B&M's shares are currently trading on an FY25F EV/EBITDA of 7x, which it considers "notably low, offering an attractive investment opportunity with a 15% discount to the UK retail sector".