B&M European Value Retail SA - Operating in a challenging environment

B&M European Value Retail SA (LON: BME) is a FTSE 100-listed general retailer Company and is a fast-growing variety goods value retailer. The Company’s stores are operating in the UK and France.

On 26 May 2021, the Company will announce the FY21 preliminary results.

Rationale for Valuation – Expensive at GBX 544.60

• The Company is trading near a 52-week high, and Price/Earnings, EV/EBITDA, EV/Sales and Price/Cash Flow multiples are significantly higher as compared to corresponding multiples of the Diversified Retail industry, reflecting overstretched valuations.
• The operating landscape remains highly volatile with the continuing uncertainty due to Covid-19 pandemic.
• In the last three months, the Company delivered a return of ~10% and delivered lower returns compared to the benchmark Index (FTSE 100 Index).
• From the technical standpoint, 14-day RSI stood at ~78.32 (overbought zone), which means the stock price could decline in the short term.

Key Risks

• The business operations have been impacted due to the covid-19 crisis.
• Further, a slump in the consumer purchasing power due to massive lay-offs and furloughs could have a weigh on the demand side of the economics.
• The geopolitical changes and recession in the economy could hamper the Company's operations and affect the company's financial performance and operational stability.

Q3 FY21 Trading Update (relating to the 13 weeks from 27 September 2020 to 26 December 2020, as on 7 January 2021)

(Source: Company Website)

• In Q3 FY21, Group revenue increased by 22.5% YoY on a constant currency basis, with B&M UK stores3 revenue growth of 26.6% YoY and Babou and B&M France revenues decreased by 1.4% YoY.
• In B&M UK, the Company has opened 18 gross new stores.
• The Company delivered another quarter of solid LFL sales growth in Heron Foods business.
• Further, it provides a special dividend of 20 pence per share to the shareholders, which will be paid on 29 January 2021.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company has a total of 1,075 stores across the Group (at the end of Q3 FY21). Despite the Covid-19 pandemic's face, the Company has traded well with revenues and margins proving resilient. For FY21, the Board expects the revenue to be strong. The guidance for FY21 Group adjusted EBITDA (on a pre-IFRS16 basis) narrowed to be within the range of £540-£570 million, with the voluntary payment of business rates amounting to around £80 million. Meanwhile, it has also delivered a strong financial performance in H1 FY21, with good visibility over current work-in-progress and pipeline opportunities. However, the business is more exposed to the economic uncertainties arising from the Covid-19 pandemic. In the future, the Company may face emerging headwinds and cost pressures. The Group is presently trading near the 52-week high, raising doubts at the upside potential at the current price level. The stock made a 52-week low and high of GBX 225.16 and GBX 548.40, respectively.

Based on the factors as highlighted above, we believe the stock of B&M European Value Retail SA is “Expensive” at the closing price of GBX 544.60 (as on 8 January 2021), with support from few catalysts needs to be evaluated at a later stage such as decent prospects of London market and improved investors sentiments.

TP ICAP Plc

TP ICAP PLC (LON: TCAP) is FTSE 250 listed Company, which act as a professional intermediary to bring together the sellers and buyers in global energy, financial, and commodities markets. It provides services related to broking, market intelligence and data & analytics.

Rationale for Valuation – Avoid at GBX 237.80

• In the short-term, the UK market is likely to remain under pressure due to increased market volatility.
• On a trailing twelve-month basis, the Company’s Price/Cash Flow multiple is significantly higher as compared to the Investment Banking & Investment Services industry multiple, reflecting overstretched valuations.
• The Company’s net margin and Return on equity are lower than the industry median.
• The stock has underperformed the index (FTSE 250 index) during the last year period and delivered a negative return of around -42%.
• From the technical standpoint, shares were trading below the short-term support level of 100-day (GBX 243.50) simple moving average prices, which reflects a downtrend in the stock and can decline further.

Key Risks

• The Company is exposed to the risk of a fundamental change to the regulatory framework, which has a material adverse impact on the business and economic model.
• There is a risk that the Company suffers loss as a result of a movement in foreign exchange rates, whether through transaction risk or translation risk.
• Moreover, the Covid-19 mayhem and macroeconomic uncertainties will keep the market volatile in the short term.

Trading Update (as on 7 January 2021)

• As stated, the revenue was 2% lower on a reported basis and 1% lower on a constant currency basis in the first nine months of 2020 as compared the first nine months of 2019.
• For FY20, it expects revenue to be 1% lower than the prior year.
• For FY20, Liquidnet has proved resilient in the midst of the Covid-19 pandemic.
• Liquidnet is expected to produce decent revenue performance against the FY19.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Conclusion

In January 2021, the trading activity witnessed a decrease in the performance and was materially lower than the same period 2019 levels. In the financial year 2020, the revenue is expected to be 1% lower than the prior year. The Company will continue to monitor the impact of the coronavirus pandemic on the customers through the remainder of the year. Moreover, the Group stays cautious as economic uncertainty continues. Further, the prolonged impact of the COVID-19 outbreak continued to affect its financial results, plans, operations, outlook, goals, reputation, liquidity and stock price. The stock made a 52-week low and high of GBX 160.25 and GBX 412.60, respectively.

Based on the headwinds faced by the Company, we have given an “Avoid” recommendation on TP ICAP at the closing price of GBX 237.80 (as on 8 January 2021). 

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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