B&M European Value offers 'compelling value', says RBC

B&M European Value has “reached an inflection point” for sales, reckons RBC Capital Markets, upgrading the discounter on Friday.

RBC, which made the stock its ‘top pick’ with a price target kept at 400p, said B&M should see better like-for-like sales growth in the fourth quarter and next year.

A survey among 500 shoppers indicated positive consumer trends for the B&M’s UK business, less so for those in Germany and France, but the Frozen and International business are seen as good prospects for medium-term growth.

Germany’s Jawoll had a challenging year but an increase in unified sourcing and better ranges “should drive sales and reduce markdowns next year”.

But as the UK, comprised of B&M and frozen and chilled specialist Heron, accounts for around 90% of group sales and almost all of the group's profit, continued space rollout and positive UK LFL sales “should be supportive for earnings”.

Once the Bedford UK distribution centre opens in early 2020, B&M will be able to further roll out its frozen concepts into B&M stores, which RBC said could lift LFL sales by 1%-2% per year from the 2021 fianincial year, based on the precedent set by Dollar General in the US.

With the shares down 20% from their 12-month high at 16 times calendar 2019 earnings, the current valuation “looks compelling”, RBC felt.