Investors seeking a beneficiary of the cash-strapped shopper’s quest for value should consider multi-price discounter B&M European Value Retail (BME). New customers are driving strong growth at B&M, it is opening new stores in the UK and Germany and the acquisition of Heron Foods provides a new growth channel in the attractive convenience sector.

Liverpool-headquartered B&M, a variety retailer founded in 1978 and floated on the stock market in 2014, is among those shopkeepers disrupting the market by offering value to hard-pressed consumers. We’ve come round to the view that Simon Arora-steered B&M is one of UK retail’s highest quality names. It is a self-funded growth story and a cash generative business offering investors scope for higher dividends.

CHRISTMAS CHEER

Last month (12 Jan), B&M reported record Christmas trading, with like-for-like sales in its core UK B&M estate up 3.9% in its third quarter to 23 December, a performance built on a particularly strong prior year comparator, when sales shot up 7.2%.

Overall sales for the UK B&M-branded estate grew 12.9% to £837.3m, reflecting same-store growth and new store openings, with B&M’s budget grocery and FMCG (fast moving consumer goods) ranges flying off the shelves.

As Liberum Capital argued in a recent note to clients, B&M is ‘a stock for all seasons’, benefiting from higher average transaction values in prosperous times, while footfall and volumes rise in a more uncertain climate.

CONVENIENCE OPPORTUNITY

In Germany, B&M’s nascent Jawoll chain’s sales grew 10.4% to £52.7m in sterling terms.

Back on home turf, the FTSE 250 constituent said its North of England-focused discount convenience chain Heron, acquired for £152m last summer, chipped in £79.8m of revenues in the quarter including ‘strong positive like-for-like revenue growth’.

Convenience is one of the areas of growth in grocery retailing and Heron is allowing B&M to roll out a complementary discount convenience grocery brand.

‘Management has a strong track record of navigating exogenous shocks and we see multiple drivers of long-term growth,’ enthuses Liberum Capital. For the year to 31 March 2018 Numis Securities forecasts a pre-tax profit surge to £224.2m (2017: £190.1m) for earnings of 17.8p (2017: 14.8p) and a 7p dividend (2017: 5.8p).

For 2019, Numis looks for pre-tax profit of £257m and earnings of 20.5p and an 8p shareholder reward. Though B&M swaps hands for 20.5 times next year’s forecast earnings, we view the business as an exciting structural growth winner.

In addition, sterling’s recovery will help B&M’s margins, since it sources most of its non-food product directly from Asia in US dollars. (JC)

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