Premium content from Motley Fool Share Advisor UK
Our monthly Ice Best Buys Now are designed to highlight our team’s three favourite, most timely Buys from our growing list of income-focused Ice recommendations, to help Fools build out their portfolios.
“Best Buys Now” Pick #1:
B&M European Value Retail (LSE: BME)
- B&M continues to go from strength to strength in the quarter just ended. After falling in Q1 as the business lapped a tough comparative period revenue growth rebounded strongly to 6.3% in Q2.
- That brought total H1 revenue growth up to a respectable 1.8%. While super-charged pandemic era profitability is ending, the business also remains hugely profitable for a retailer. Operating profits of £249m during the six months to 24 September represent an impressive margin of 10.8%.
- In a competitive, generally low margin sector that level of profitability points to how adept management have been at maximising same store sales growth and keeping a tight lid on costs.
- To date this industry-leading profitability has created a virtuous circle as higher profits allow for re-investment in further price competitiveness that leads to even more sales growth from cost-conscious customers.
- Importantly as an Ice share, B&M provides an attractive level of income with the 2.6% yielding ordinary payout supplemented by semi-regular special dividends. With leverage already low going into the crucial a golden Quarter and management hinting that cash flow should be strong again, we expect another special dividend to be announced early next year.
- B&M isn’t dirt-cheap at about 16x trailing earnings. But with great growth prospects and huge cash flow that is being both re-invested to generate more growth and returned to investors, we think it’s worth taking a closer look at in December.
