On Friday, Berenberg reiterated its Buy rating on B&M European Value Retail SA (LON:BMEB) (BME:LN) (OTC: BMRRY), maintaining a price target of £6.30. The firm's stance on the stock is based on B&M's leading position in the value-focused retail sector, which spans both grocery and general merchandise. The analyst highlighted B&M's consistently higher sales, margins, and cash flow when compared to pre-pandemic levels, emphasizing the company's robust growth prospects.
B&M's current price-to-earnings ratio of approximately 9.5 times its first-year post-COVID earnings is considered significantly undervalued by Berenberg, given the predictability of the company's profit growth and cash flow generation. The analysis points to B&M's historical performance, where it returned roughly £1.9 billion to its shareholders through ordinary and special dividends between the fiscal years of 2020 and 2024. This figure represents about 55% of B&M's current market capitalization.
The firm forecasts that B&M will continue this strong pattern of returning capital to its shareholders, projecting an annual total dividend yield of around 10%. Additionally, the review currently being conducted by B&M's management regarding the group's corporate domicile is expected to potentially increase the company's flexibility in returning capital to shareholders, possibly through share buybacks.
Berenberg's positive outlook on B&M is further supported by the company's ability to compound growth over multiple years. The firm's analysis suggests that B&M's value proposition and financial strategies position it well for sustained profitability and shareholder returns in the coming years.
In other recent news, B&M European Value Retail SA has been under the analyst's microscope, with significant actions taken by UBS, Barclays (LON:BARC), and Morgan Stanley (NYSE:MS). UBS initiated coverage of B&M with a sell rating, citing challenges to the company's once disruptive direct-sourcing model, particularly in fast-moving consumer goods (FMCG). The firm believes B&M's competitive advantage in FMCG, crucial for driving customer traffic, has lost momentum.
Barclays, on the other hand, reduced its price target for B&M to GBP6.15 from GBP6.25, while maintaining an Overweight rating. This adjustment comes in light of the firm's expectation for B&M's first-quarter like-for-like sales to decline by 4.0%, the largest drop in two years, due to challenging year-over-year comparisons and adverse weather conditions. However, Barclays foresees a rebound in positive sales from the second quarter onwards, with total sales growth projected at approximately 2%.
In contrast, Morgan Stanley downgraded B&M from Equalweight to Underweight, lowering its price target to £4.33 from £5.75. This action is due to B&M's lagging sales performance, trailing the UK retail average, and significantly behind key competitor Tesco (OTC:TSCDY). The firm also expressed concerns about the sustainability of B&M's current profit margins, leading to a downward revision of its earnings per share estimates for B&M by 11%. These are some of the recent developments impacting B&M European Value Retail SA.
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