Shares in B&M European Value Retail (BME) rose 4.2% to 510.9p on Tuesday after the general merchandise discounter upped first-half earnings guidance with customers spending more money per visit.

One of the leaders in a structurally growing discounter market, the retailer’s latest update confirms the recent FTSE 100 entrant is well-positioned for tougher economic times. When people feel the pinch they tend to trade down from more expensive shops and products to the sort of value proposition that B&M offers.

MOMENTUM MAINTAINED

In an update for the six months to 26 September, B&M reported ‘strong first-half revenue growth and profit uplift’ driven by ‘elevated average spend per visit’.

As a result, first-half adjusted earnings before, interest, taxes, depreciation and amortisation (EBITDA) is now expected to be above the previously guided £250 million-to-£270 million range at roughly £285 million.

During the half, group revenue grew 25.3%, with B&M’s UK stores generating impressive like-for-like growth of 23.0%. Furthermore, trading momentum at B&M UK stores was maintained in the second quarter with 19.1% like-for-like growth and ‘an exit rate at a similar level’, according to the company.

‘Our business model is proving well-attuned to the evolving needs of customers, given our combination of everyday value across a broad range of product categories being sold at convenient out-of-town locations,’ enthused chief executive Simon Arora.

B&M’s value proposition is ideally suited to the current environment – value-oriented and generally situated in larger, out-of-town sites where it is easier for shoppers to socially distance – and its market capitalisation has swelled thanks to strong UK trading throughout the pandemic.

Encouragingly, B&M also reported positive like-for-like sales growth at Babou in France since re-opening on 11 May 2020, with total first half revenue of €156.8 million and a small positive EBITDA outturn for the half year, despite the closure due to lockdown over the first 6 weeks.

WHAT THE EXPERTS ARE SAYING

Quilter Cheviot analyst Amisha Chohan says B&M is ‘winning market share and has attracted a new, middle class, customer base - who are beginning to shop with them regularly. We believe B&M will continue to outperform peers as consumers become much more money conscious.’

She believes B&M’s ‘strong UK store roll-out story remains valid with the opportunity to accelerate a roll-out in France. Investors had lost faith in B&M’s international model but if they are able to demonstrate its sourcing model can work in France, which is beginning to bear fruit, it expands the investment case further.’

Russ Mould, investment director at AJ Bell, commented: ‘If B&M continues to have a relatively good crisis then questions may turn to where it goes next. Amid an apparent takeover of Asda, very much the stepchild of US grocer Walmart’s portfolio, there has been some speculation that B&M might be a good merger candidate for Asda in the medium term.

‘Given both operate towards the discount end of the market there could be logic to such a tie-up, particularly given Asda doesn’t currently have any real local, convenience store presence and B&M has just such an offering with its Heron Foods arm.’

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Issue Date: 29 Sep 2020