If I listed all the FTSE 100 share prices that have climbed by double figures this year, it wouldn’t take up much space. But one of them is B&M European Value (LSE: BME), whose shares are up a mighty 26% so far in 2020.
B&M picked up 5% Tuesday morning on the back of a trading update, ahead of interim results. The discount retailer spoke of “strong first-half revenue growth and profit uplift driven by elevated average spend per visit“.
B&M reported total revenue growth of 25.3% in the first half. UK stores brought in a 29.5% rise in revenue, with like-for-like growth of 23%. The year had started off well, and the momentum carried into the second quarter. Like-for-like revenue in Q2 rose by 19.1%.
Ahead of guidance
The company now expects adjusted EBITDA to come in above previous guidance, at approximately £285m. The previous range had been between £250m and £270m. Not many FTSE 100 companies can boast that kind of improving outlook.
There’s a forecast price-to-earnings multiple of around 16.5, with a predicted dividend yield of 2%. In more normal times I might consider that a little pricey. But in these days of renewed defensive investing focus, I think it could turn out to still be good value. A lot will depend on B&M’s earnings growth in the next few years. And even a flat year could see the share price slip back.
But for the long term, I think we could be looking at a solid stream of profits for years to come. Interim results should be here on 12 November.
More FTSE 100 growth
Motley Fool writer Harvey Jones has pointed to the relative success that Homeserve (LSE: HSV) investors have enjoyed in 2020. The emergency home repairs company saw its share price crash in March. But it was deemed to be providing essential services, so it was able to keep on trading. Few FTSE 100 companies were that fortunate.
The share price quickly recovered, and you’d have done very well to have bought at the bottom – you could have bagged a quick 60% profit. Since hitting a year’s high in August, the Homeserve price has pulled back a bit as a second wave of coronavirus restrictions has been hitting shares again. But it’s only down 4% overall on the year, which I rate as a very good performance in the circumstances.
Homeserve is on a forward P/E of 30, which is about twice the FTSE 100 average. I’d usually baulk at such valuations, as growth investors do have a habit of overpricing their favourite shares. But in this case, I really do see solid long-term growth ahead.
Homeserve is recording steady growth in the UK, and its worldwide expansion should open up significantly greater potential. The firm already has 8m customers in the US and is targeting Japan. And a July update told us that “M&A activity has restarted with a strong pipeline of attractive targets and four profitable acquisitions completed in May and June“. That included one netting 38,000 new policy customers in Spain.
We do need to keep an eye on debt, especially with more acquisitions in the pipeline. But if that stays sensible, I see long-term growth here.
Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended B&M European Value and Homeserve. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.