B&M European Value Retail SA

B&M European Value Retail SA (LON: BME) is an FTSE 100 listed Company, which is engaged in variety retailing in the United Kingdom and France.

BME will pay a final dividend of 13.0 pence per share on 06 August 2021, while the ex-dividend date will be 01 July 2021.

Investment Highlights – B&M European Value Retail SA – BUY at GBX 528.00

• The UK retail sales volume had witnessed a surge of around 9.2% in April 2021 as Britain’s economy came back into action.
• The Company remained on track to deliver a target of at least 950 B&M UK stores, with 45 gross new stores expected in FY22. 
• BME had demonstrated a significant upward trend in the top-line and bottom-line business during FY21 as compared to FY20.
• Driven by strong cash generation during FY21, BME had shown approximately 113.6% growth in the total FY21 dividend.
• From a technical standpoint, the 14-day RSI (~32.39) is inching towards the oversold zone and indicating an upside potential in the stock price.

Key Risks

• The weak consumer confidence and declining disposable income can impact consumer spending, and thus, the profitability.
• The Company is also facing intense competition which can put pressure on margins and desired growth might not be achieved.
• The Covid-19 related lockdowns may dent the top-line business of the Company.

Recent News

On 03 June 2021, Gilles Petit has confirmed that he would be retiring from his role as a non-executive director with effect from 29 July 2021.

Financial Highlights (for 12 months ended 27 March 2021, as of 03 June 2021)

(Source: Company Results)

• The Group revenue had increased by 25.9% to £4.80 billion during FY21 as the business remains operational during the Covid-19 pandemic.
• The adjusted gross margin had witnessed a growth of around 292 basis points to 36.7% during FY21.
• The profit before tax grew by 108.5% on a statutory basis and rose by 107.7% on an adjusted basis during FY21.
• BME had shown around 113.6% growth in dividend declared with respect to FY21 as compared to the prior year.
• Moreover, the cash generated by operations had increased by 75.0% to £944.0 million during FY21.

One Year Share Price Chart

(Analysis done by Kalkine Group)

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

Conclusion

The Company had achieved resilient financial performance during FY21 as it continued to remain operational even during the UK nation-wide lockdown. Moreover, BME had managed to achieve record performance during the final week of FY21. Furthermore, the Company had experienced encouraging trading performance in France once the restrictions got lifted on 19 May 2021. BME would focus on customer retention and efficient cost management to deliver FY22 adjusted EBITDA margin higher than the historical levels. The stock made a 52-week low and high of GBX 311.36 and GBX 612.00, respectively.

Based on the robust FY21 financial performance, strong industry sentiments, and the valuation method discussed above, we have given a "BUY" stance on B&M European Value Retail SA at the current market price of GBX 528.00 (as of 07 June 2021 at 1:45 PM GMT), with lower-double digit upside potential based on 18.98x Price/NTM Earnings (approx.) on FY22E Earnings Per Share (approx.).

AO World PLC

AO World PLC (LON: AO.) is an electrical retailer, which sells small and major domestic appliances and consumer electronics. The Company’s operations are differentiated into two segments, namely the United Kingdom and Europe.

On 1 July 2021, AO is likely to announce its FY21 results for the 12 months ended 31 March 2021.

Investment Rationale – BUY at GBX 252.20

• The UK website increased revenue by 88% year-on-year in Q4 FY21, while the German website delivered 77% increase in FY21 revenue against FY20.
• The Group adjusted EBITDA is likely to be in the range of £63-£72 million in FY21, significantly higher than the FY20 level.
• From a technical standpoint, 14-day RSI (47.65) is hovering close to an oversold position, while the price has gone down to a lower standard deviation line of the Bollinger bands.
• Over the past four years (FY16 to FY20), revenue has increase at a CAGR of ~14.95%.

Key Risks

• The Covid-19 pandemic can pose a significant risk to the supply chain.
• Also, the increased cost in recycling and logistics operations can impact the profitability of the business.
  

Trading Statement for the year ended 31 March 2021 (as on 15 April 2021)

• During FY21, revenue surged 62% year-on-year with strong trading momentum in Q4 FY21.
• The German business attained a profitability run rate in Q3 FY21 and likely to generate profit in FY21.
• The Company also added 2 million new customers, while net promoter score remained above 80.
• AO has also strengthened its position with increased operating capacity and shall get a scale advantage in the future.

Share Price Chart

 (Research done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative)

Conclusion

AO has substantially improved its financial position by the end of FY21 with £66.5 million in cash (FY 20: £6.9 mi) and £80 million in a re-negotiated revolving credit facility. It has delivered a strong performance across all aspects in FY21, and thus, it is well-placed to capitalise on opportunities presented by the Covid-19 pandemic. Moreover, the Company’s strong customer satisfaction rating and infrastructure developments underpin its ability to seek further growth. The stock made a 52-week High and Low of GBX 444.50 and GBX 131.00, respectively.

Based on improved liquidity position, bright outlook prospects, leading scores for customer engagement, coupled with the favourable valuation conducted above, we have given a “BUY” recommendation on AO World PLC at the current market price of GBX 252.20 (as on 7 June 2021 at 10:54 AM GMT) with lower double-digit upside potential based on 33.74x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

*All forecasted figures and Peer information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

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

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

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