FTSE 100 company B&M European Value Retail (LSE:BME) operates physical stores filled with a massive range of merchandise from stationery to garden furniture, hot tubs, and DIY goods. Its unique selling point is simply that its products are very cheap. It sells quality branded goods, but at knock-down prices and consumers can’t get enough.
A FTSE 100 stock showing resilience
While retail has suffered in the pandemic’s wake, this type of business model is proving resilient. People love a bargain, and with little in the way of services and entertainment on offer, consumers are treating themselves to products instead. The group has not been badly affected by UK lockdowns because it has been allowed to remain open.
B&M now operates 673 UK stores and is on track to open up to 45 new stores during this financial year. It has a price-to-earnings ratio (P/E) of 60, earnings per share (EPS) are 9p, and its dividend yield is 1.5%. The B&M share price has risen over 50% in a year and the company has a market cap of £5.4bn. It’s clearly an expensive stock, but the company remains profitable with clear potential for further growth. That’s very attractive when UK retail is on a downward trend.
Group revenue in Q3 rose 22.5% and the company volunteered to pay its business rates in FY21, costing around £80m. And it also awarded around 30,000 store and distribution colleagues an extra week’s wages in recognition of their considerable efforts. The FTSE 100 company paid out dividends of £500m in 2020, including a special dividend so shareholders could reap the benefits from its successful year.
The group expects FY21 group adjusted 2021 earnings before interest, taxes, depreciation, and amortisation (EBITDA) to be within the range of £540m to £570m. Analyst estimates pitch it at £544m. Results are due at the end of March.
Lacking an online presence
I find it strange and somewhat random that B&M has a website filled with products to browse but not to buy. However, it has another website for sheds and garden storage that can be purchased online.
I imagine it would be a lot more profitable with an online presence, from which we could purchase its regular products. However, it seems its low prices mean margins are tight. Therefore, there’s little wiggle room for the additional expense created by home delivery. The larger products probably come with wider margins and are more cost effective to deliver.
Operating physical stores means it also faces rising business rates and wages. And it somewhat depends on the luck of the draw when it comes to its locations. Some will naturally be more successful than others.
I don’t plan on buying shares of B&M as it’s quite an expensive FTSE 100 stock, and there are cheaper stocks I prefer. But I think it operates a good business model and I can see why many investors would consider it a sensible addition to a long-term Stocks and Shares ISA.
