By far the biggest faller in the FTSE 100 index today is B&M European Value Retail (LSE: BME). As I write late on Tuesday afternoon, the B&M share price has crashed by almost 15% since Monday’s close. Even worse, B&M shares have lost almost a third of their value in 12 months. So what’s going on at the 700-store bargain chain? And would I buy this stock after today’s plunge?
The B&M share price roller coaster
At its 52-week high on 4 January 2022, the B&M share price hit an intra-day peak of 651.4p. As I write, it trades at 394.8p, having dropped to a 52-week low of 385p early today. Following these falls, here’s how B&M shares have performed over seven different timescales:
| One day | -14.6% |
| Five days | -8.4% |
| One month | -22.0% |
| Year to date | -37.6% |
| Six months | -36.8% |
| One year | -31.2% |
| Five years | 8.5% |
As you can see, the B&M share price has fallen over six periods ranging from one day to one year. In other words, it’s had a tricky 2022. However, over five years, B&M shares have gained 8.5%, versus 1% for the wider FTSE 100 over half a decade. (All figures exclude cash dividends.)
What went wrong at B&M?
The big hiccup for B&M and its share price was revealed in its preliminary results for the year ending 26 March 2022. Formerly a go-go growth company, B&M revealed that group revenues fell by 2.7% year on year to £4,673m. As a result, profit before tax was flat at £525m, while earnings per share of 42.1p came in below 2020/21’s 42.7p.
Two more pieces of news probably affected the B&M share price. First, the final dividend is being reduced to 11.5p from 13p in the prior year. This takes the full-year dividend payout to 16.5p, versus 17.3p in 2020/21. Second, Alex Russo, currently Chief Financial Officer, will take over from retiring CEO Simon Arora. That’s a lot for shareholders to absorb in a single day, hence the sliding shares.
I’d buy B&M shares today
Following today’s crash in the B&M share price, here’s how the retailer’s fundamentals now stack up:
| Share price | Market value | P/E ratio | Earnings yield | Dividend yield | Dividend cover |
| 394.8p | £3.9bn | 9.1 | 11.0% | 4.6% | 2.4 |
It’s important to note that these are backward-looking figures based on trailing earnings and so on. And B&M has warned that its sales and profits will take further knocks in 2022. Even so, a trailing price-to-earnings ratio of 9.1 and an earnings yield of 11% look undemanding to me. But they may be marked down even harder in future. That said, B&M’s dividend yield of 4.6% a year beats the wider FTSE 100 index’s cash yield of 4% a year. Also, dividend cover of 2.4 times gives plenty of room to maintain the dividend while awaiting a profit recovery. All this suggests to me that the B&M share price may have fallen too far.
To sum up, the B&M share price took a brutal beating today because the company is no longer the great growth engine it once was. But as a veteran value investor, its shares look cheap to me after steep falls. Hence, I’d buy and hold this variety discounter’s stock today, on hopes of decent dividends and future capital gains.
