Deutsche Bank upgrades B&M to 'hold', lowers target price

Analysts at Deutsche Bank upgraded their rating on retailer B&M from 'sell' to 'hold' on Wednesday, stating earnings risks were increasing but valuation upside was also present.

Deutsche Bank said B&M had joined an increasingly long list of retailers and given out guidance for the current trading year that did not seem to fit either the facts or the general investor worldview.

The German bank stated that now the problem was that it was waiting for B&M to cut its £550.0-600.0m adjusted underlying earnings guidance on either weaker like-for-like sales from its current flat assumption or cost deleverage from its assumption of holding cost/sales flat – or more likely both.

"The decline in spending power of the core B&M customer remains a concern and we see an overhang from further consensus downgrades (DB FY23e adj EBITDA c.£500m) but the valuation downside no longer looks compelling, and we upgrade our recommendation to 'hold'," said DB, which also lowered its target price on the stock from 560.0p to 480.0p.

"There is likely to be some short-term volatility, but taking a 12-month view we think the absolute downside looks limited at c.11x Cal 22e PE."