Stock Pitch - B&M Value Retail (LON:BME)

23rd Nov '20 by Jack Brumby

20 comments 4948 reads

As a Balanced large cap stock, B&m European Value Retail Sa (LON:BME) broke the mould when it was pitched to the SIC at its most recent meeting on Tuesday 17th November. At this point shares traded at 497p.

B&M was one of the few 'essential retailers' allowed to stay open during lockdown. Consequently it did not just continue to trade in this tough period - it attracted new customers.

Even with a market cap approaching £5bn, B&M retains the air of a retail upstart with its distinctive product lines, multiple price points, and attractive box economics.

It wants to take share in big markets - so can this multi-billion pound company continue to create shareholder value or is it running out of headroom?

TLDR;

B&M is a value variety retailer offering 'big brands at big savings', with stores in the UK and France. Its estate of big box units in out-of-town destinations are classified as 'essential retail', meaning it has in fact benefitted from lockdowns.

Bull Points: Value Retailing is a 'structurally growing sector'; strong market position with 'substantial scope for further expansion'; founder-led entrepreneurial culture; strong revenue growth; cash generative low cost model; StockRank double re-rating (from 49 to 80, and then from 80 to 96 on its last two updates)
Bear Points: a large cap at risk of derating if growth slows; the Covid trading boost might reverse in 2021; the group has attempted international expansion before and has just offloaded its German business

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About the Stock:

B&M is listed on the LSE Main Market and operates in the Consumer Cyclicals sector as part of the Diversified Retail industry group.

It is a large cap Super Stock with a Balanced RiskRating. This means it is in the lowest 35% of stocks in terms of share price volatility and could play a useful stabilising role in a growth-orientated portfolio.

The group has a share price of 495.05p and just over a billion shares in issue, giving it a market cap of £4.95bn.

B&M's StockRanks have improved materially. In the past 30 days the StockRank has improved by 15 points to 97, driven by:

A 25 point improvement in Quality Rank to 96,
A 25 point improvement in Value Rank to 61, and
No change in Momentum Rank at 87

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Hartshay

23rd Nov '20

Not sure about this one. Sold out recently as I think that any near term major growth is already priced in and the dividend is too small for me as an income stop. I think there are much better growth opportunities out there at the moment.

ianahughes

I sold B&M in April 2020 @ 370p when the Stockopedia ranking was 26. Since then the ranking has risen to 97 - quite a re-rating in a 6 month period!

Mark B

I hold and look forward to many years of growth.

18springfield

I think, that this is a store that not many people have been inside, once inside and see the range and display you would go again. this is like the middle aisle of Lidi, but this is the whole store, so its a thumbs up for me.

timprestage

The numbers look good and the store itself is very reminiscent of the old FW Woolworth style that proved a winner for so many years. I will certainly purchase some as a medium term stock for the Brexit shake down period. This appears a solid British company with good management and an inclination to get back into Europe were we all belong.

Tim Chorlton

Many thanks for the write up Jack - I was doing my own research on B&m European Value Retail Sa (LON:BME) and Revolution Bars (LON:RBG) this weekend.

muzmano

If you're looking at B&m European Value Retail Sa (LON:BME) it's probably worth looking at Up Global Sourcing Holdings (LON:UPGS) who supply a fair range of goods to B&M under their Beldray, George Wilkinson, Tempo and Russell Hobs (non electrical) brands. UPGS used to supply a lot more electrical goods but seem to be replaced a few years ago by Goodmans, a brand owned by a private company (last time I checked.

Funnily enough I took a job at B&M at the start of covid. My experience was not great. There seems to be a variance in the quality of the stores. Covid has been huge for B&M but they also seem to have not increased staff numbers (who mainly earn minimum wage). It does seem a bit musical chairs to me. what will happen to growth after covid (can they retain new customers) and what happens when they can't continue to grow store numbers. Still I've been in and out of the shares recently (currently out) and they've had a great run.

Rusty2

I’m not convinced by B&M European Value Retail SA (LON:BME), they have benefited by lockdown as they remained open when many of their rivals were closed. They have opened many new stores but how much longer can that happen in the UK?

In my area they have quite a few stores, maybe too many, the out of town ones are rarely busy, for a large store there are very few tills, I think 4 in the one I visit most and rarely all staffed. I don’t buy much from them, just a few odd things such as coconut milk. Some items are good value such as builders bucket for £1 and garden tools. They also stock Johnstone paints. There is more competition as well now such as the Range which I think is much better for furniture and many household items.

Gromley

Hi Jack,

Thanks for another interesting write up - I'm really enjoying this series.

However, I can't help noticing that you are only sharing the pitches that were bought.

It's fair to say that the appropriate tactic for the current market feels a bit like - just buy everything; but I'm sure you guys are a bit more discerning than that.

Personally I would find it really interesting to see details of any of the pitches that didn't quite make it. No need to embarrass anyone by sharing any real duds (if any) but it would be really interesting to hear of any things that narrowly failed to secure a majority and in particular to hear the arguments against.

Peter171

24th Nov '20

Glad my recent acquisition was supported by the SIC

Croxford

Disagree with you on this. They sell branded items at discounted price, and have benefited from an increased customer base looking for smaller bills in these difficult times. Yes you have to queue at the tills due to reduced staffing. They have an image problem being seen as a ‘cheap’ store but look at there last 4 years accounts to see a good investment.

I think you have misunderstood my point, I never mentioned queuing at the tills, in fact that is rare because there are rarely many customers. Many customers don't even use a trolley as they only buy a few small items, many don't even use a basket, I have noticed that at the tills. I think the challenge is to get customers such as myself to switch their shopping to BME. Food I buy most at Aldi and Morrisons, DIY most at Screwfix, household items I buy at Dunelm or the Range. As I say I just buy the odd item there, coconut milk is cheap but their food range is poor unless you like pot noodles or crisps. Household cleaning items are ok but no better than Wilko. The stores are just like a DIY shed, there could be some improvement there and I think the range of goods could be much better, look at the Range and Dunelm for example. I agree they have an image problem, I think they could work on that.

RMc2407

25th Nov '20

Not going terribly well is it?

Macro

Fundamentals look good.

... Timing of entry may look a little toppy to some?

- Positives:

-- RSI(14) has held above 40 since the March lows, which is bullish

-- On Balance Volume has held up recently in the current pull-back

-- EPS forecasts rising

-- Undervalued on current growth projections

- Negatives:

-- MACD(12,26,9) has shown a divergence with price since August

-- Accumulation Distribution has dropped markedly from 6th November which can be a sign of professional selling during market hours

-- 9th November red candle on high volume is a potential Change of Character. Which could send the price action into a trading range. Entry on 23rd November may have been at the top of an Automatic Reaction. Which could define the trading range as 500p-440p.

Support at 454p, then 442p, then 424p, then 339p then all the way down to the March low at 245p.

Will be interesing to see if a Wyckoffian pattern will emerge or if the bull-run re-asserts itself.

John Luck

28th Nov '20

Recently bought into these shares and feel that they have good continued growth prospects.

jsaunders

I feel that the demographic who use these stores are going to be the hardest hit in the great post Covid & Brexit economic meltdown which is surely to come early next year. Their goods may be cheap but their customers on universal credit will have much less spending power.

1st Dec '20

I have just been in one of the stores today, this is one of the out of town stores, near to Homebase, Screwfix, Morrisons, Aldi. It was the busiest I have seen it for a long time but still only 3 tills manned out of 6 and queues were not long only about 2 customers at each till.

Prices I don't find that cheap actually, most of the prices I saw were at or higher than rivals such as Wilko. Many items I wanted were out of stock or they did not have anymore, staff, did not see any apart from on the tills. Most customers only had baskets or nothing, did not see many trolleys being used. So I did not buy much just some toothpaste which was a mistake as cheaper in Morrisons and more choice. 3 items I wanted were not in stock. Some brands are cheaper but the jars are smaller, as in Homepride sauces, pasta sauce is £1.25 but in Morrisons it's 2 for £2 for larger jars.
Even though it was busier, Aldi was busier but a much smaller store, Morrison was also but their store is bit larger. If you go by the checkouts it's a good indication of how busy a shop is. BME had 3 tills open, no self service, Aldi had about 6 tills open, Morrisons had about 15 tills plus some self service. I think BME have done well to get to where they are but I have concerns about their growth.

I was curious to know what shoppers considered the best/worst products were and I did find something:
Best:
1) Wallpaper
2) Bedding
3) Make-up brush sets
4) Alcohol
5) Curtains
6) Backpacks
7) Dried dog food.

Worst:
1) Candles
2) Furniture
3) Food
4) Sandwiches
5) Cutlery
6) Slippers
7) Vacuum Cleaners

Many of those I don't buy or have not looked at in BME. Yes the furniture and the food does not look good. Alcohol, I have looked but it was a very limited range. I may have a look at bedding but I bought mine in Dunelm, Asda and TOFS. Wallpaper I do use.

2nd Dec '20

My local B&M stores seem to have pretty much sold the majority of their Christmas stock already. As do the range and similar places. There are also frequently empty shelves in household goods, food and pet Will they be able to get enough stock to keep revenue high.

B&M didn't do Black Friday this year. I assume because they didn;t need to. I understand that my local store still had its best Friday ever on Black Friday. For now I'm watching closely but still on the sidelines. I just can't make up my mind what fair value is given the exceptional circumstances.

ken bishop

13th Dec '20

I have just left a comment on the Volex page. I am still in my 14 day trial of membership and understand that B & M won in a 'play off' with Volex which I was fortunate in selecting back in June. A very good analysis here and I will have a look inside one of their shops - there must be one in my area but I am not shopping very often these days !!

Stock Pitch - B&M Value Retail (LON:BME)

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Jack Brumby

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