B&M European Value Retail S.A.

B&M European Value Retail S.A. (LON: BME) is an 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.

BME had paid a final dividend of 13.0 pence per share on 06 August 2021, while the ex-dividend date was 01 July 2021.

On 11 November 2021, BME will release H1 FY22 results.

Investment Rationale for Valuation – Expensive at GBX 598.00

• BME stated that the trading patterns and strength of customer demand would remain highly uncertain for the remainder of FY22.
• On the leverage front, BME is far more leveraged than the industry as the debt-to-equity ratio of 2.77x remained higher than the industry median of 1.60x during FY21. 
• BME is currently trading near the 52-week high, making it difficult for any upside potential in the stock price.
• From a technical standpoint, BME is hovering between the upper Bollinger band and the middle Bollinger band, indicating a correction in the stock price.
• Moreover, the 14-days RSI is approaching overbought territory.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis done by Kalkine Group)

Conclusion

Based on the dismal leverage position and overstretched valuation, we have given an “EXPENSIVE” recommendation on B&M European Value Retail S.A. at the current market price of GBX 598.00 (as on 30 September 2021 at 08:11 AM GMT+1), while we will suggest fresh buying once we identify further growth catalysts.

Smiths Group PLC

Smiths Group PLC (LON: SMIN) develops, manufactures, and sells control systems and instrumentation for industrial applications to customers based in over 200 countries and territories around the world. It is listed on the FTSE 100 index.

SMIN will pay a final dividend of 26 pence per share on 19 November 2021, with an ex-dividend date of 21 October 2021.

Rationale for Valuation – HOLD at GBX 1,431.46

• Smiths Group witnessed a significant increasing trend for the operating profit and free cash flow during FY21.
• The expected consideration from the disposal of Smiths Medical division shall support investments in growth and generate a significant return of capital to shareholders.
• With regards to the shareholders’ returns, the FY21 dividend came out to be around 8% higher than the prior-year levels.
• From a technical standpoint, the 20-days exponential moving average of GBX 1,410.40 indicates an upside potential in the stock price.
• Moreover, the MACD line remained above the signal line, indicating an upside momentum in the stock price.

Key Risks

• The UK manufacturing PMI dropped further in September 2021.
• Due to the resurgence of the pandemic, travel restrictions can have an impact on new business and pipeline opportunities.
• Any rise in interest rate would make it difficult for SMIN to raise debt funding.
  

Recent News

Disposal: On 28 September 2021, Smiths Group signed a binding agreement for the sale of Smiths Medical to ICU Medical. 

FY21 Financial Highlights (for 12 months ended 31 July 2021, as on 28 September 2021)

 (Source: LSE Website)

• The underlying revenue dropped by around 2% during FY21, with revenue remained flat in the second half and witnessed growth during Q4 FY21.
• On the profitability front, the basic earnings per share had improved from 84.8 pence during FY20 to 93.1 pence for FY21.
• Meanwhile, the free cash flow grew by around 40%.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis done by Kalkine Group)

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

Conclusion 

The Company had managed to complete the restructuring program ahead of schedule. Moreover, SMIN remained well-positioned to drive accelerated growth in the core industrial technology business. Meanwhile, the sale of ICU Medical Inc for an enterprise value of approximately USD 2.70 billion would be expected to get completed by the first half of 2022. The stock made a 52-week High and Low of GBX 1,669.50 and GBX 1,287.50, respectively.

Based on the restructuring benefits, improved market trends, robust cash generation, and valuation conducted above, we have given a “HOLD” stance on Smiths Group PLC at the current price of GBX 1,431.46 (as on 30 September 2021 at 8:01 AM GMT+1).

*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.

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