It’s a year tomorrow since the Health Secretary announced the first national lockdown in Parliament. The UK has since gone through a series of lockdowns that have doomed many businesses. Some companies have prospered during lockdown, however. One example is B&M European Value Retail (LSE:BME). These FTSE 100 shares more than doubled between the start of lockdown and last month. They’ve since fallen back slightly, but are still up 98% over the past year.
Here’s why I would still consider buying B&M even after this strong run.
B&M has a successful retail format
The B&M story has been impressive for many years. The lockdown simply shone a stronger light on it. Its retail philosophy of providing well-known brands at bargain basement prices has been a hit with shoppers. Often the shops are positioned just outside town centres. That allows for cheaper rents.
However, the retail landscape in the UK has changed at speed. That could be a downside risk for B&M. For example, its success is driven by physical stores at a time when more shopping is moving online. Its price conscious image could also hamper any attempt to expand into the middle market.
How lockdowns have helped B&M
B&M was able to stay open in the UK during the lockdowns because of what it sells. Its French shops were closed for some time, but the growth engine of these FTSE 100 shares is its 971 UK shops. Being open when other shops are closed boosts sales, as was seen at retailers such as Tesco.
But that wasn’t the only reason B&M did so well during lockdown. I think it also benefited from its keen pricing. At a time when people are concerned about economic uncertainty and many were furloughed or lost their jobs, the firm’s deep discounting likely became more attractive.
For example, in the last quarter of 2020, B&M recorded 26.6% revenue growth in its UK stores. Tesco reported for a slightly longer period (19 weeks) but the growth was 7.6%. Tesco’s figure is actually still very impressive to me, but it comes nowhere near B&M’s.
Lockdown has enabled B&M to showcase its offering to a wider number of customers too, at a time when value matters to many shoppers. But that’s a risk too. When the economy picks up, B&M could see a drop in demand. Yet its retail formula looks set to keep attracting customers, in my view. The vaccine rollout and lockdowns easing mean competitors will reopen. But some have closed forever. Their loss may be B&M’s gain. Then again, maybe like other bricks and mortar retailers, B&M will suffer from a declining high street.
Why I’d still consider buying these FTSE 100 shares
So with its strong share price increase over the past 12 months, has the B&M growth story run out of fuel?
I don’t think so. The company has been good at sharing its success with stockholders. In its current financial year, it has already increased its interim dividend by 60% to 4.3p, as well as declaring a special dividend of 20p. However, the dividend was historically lower. Dividends could go down again, not just up.
Meanwhile, its trading update in January suggested full-year adjusted EBITDA of £540-£570m. That’s less than a tenth of its current market cap. Even after its strong price performance in the past year, I’d consider buying B&M now.
christopherruane has no position in any of the shares mentioned. The Motley Fool UK has recommended B&M European Value and Tesco. 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.