Credit Suisse downgraded discount retailer B&M European Value Retail to ‘neutral’ from ‘outperform’ on Friday and cut the price target to 600p from 675p, noting that the shares have consistently outperformed UK retail over the past year.
The bank said that while discounters and food retailers should be defensive in the year ahead, B&M also has a large discretionary element to its range, a core customer which is going to be very squeezed by oil, gas and food prices, and demanding comps.
“Despite higher food inflation we cut our full-year like-for-like from 0% to -2% with gross margin down 200 basis points giving an c11% cut to 22/23 earnings per share forecasts, which are circa 7% below consensus,” it said.
CS said B&M shares are down 9% year-to-date and have outperformed UK retail by 10%.
“The shares trade on 16x 22/23 price-to-earnings ratio which is reasonable but not cheap versus peers and given its exposure to a very challenged clientele.
“It is hard to see scope for a re-rating before 1H 22/23 trading is clearer. FY results are on 31 May but the main upside risk is 1Q trading in early July exceeds our expectations.”
