ii view: B&M declares another special dividend

This discount retailer has proved a pandemic winner. Should you keep buying?

Third quarter trading update to 26 December

• Adjusted revenue up 22.5%
• A special dividend of 20p per share

Chief executive Simon Arora said:

"Our trading performance is testament to the hard work and commitment of all our colleagues, to whom I express my sincere thanks. The safety and wellbeing of our customers and colleagues has remained our priority during these unprecedented times, whilst we have worked hard to provide customers with the everyday essentials they need.  

“Notwithstanding our status as an essential retailer, with lockdown restrictions in the UK having tightened there remain uncertainties ahead.  With our combination of exceptional value and convenient Out of Town locations, we are confident that our business model will prove highly relevant to the needs of customers in 2021."  

ii round-up:

Value goods and food retailer B&M European Value Retail (LSE:BME) today declared another special dividend as it continued to enjoy bumper sales growth under the ongoing pandemic. 

Third-quarter sales to late December rose by just over a fifth, with the retail chain now planning to pay a further special dividend of 20p per share.

B&M shares remained little changed in UK trading, having risen by nearly a third over the last year when it also joined the FTSE 100 index. Sainsbury's (LSE:SBRY), which also released its latest trading update on the same day, has seen its shares rise by just under 5% over the last year, while Morrisons (LSE:MRW) shares are down by just over 5%. 

B&M total UK store sales rose by nearly 27%, while sales excluding new openings were up by 21%. French sales under its Babou and B&M banners fell by 1.4%, hindered by a one-month Covid lockdown ending in late November.  

Some 30,000 store and distribution staff are being rewarded with an extra week's wages due to sizeable efforts under the pandemic. 

Full-year adjusted profit guidance was adjusted to between £540 million to £570 million from a prior £600 million to £650 million after it voluntarily paid £80 million in business rates to the UK government. 

The latest special dividend follows a 59% hiking of the half-year payment to 4.3p per share and a previous 25p special dividend per share. 

ii view:

Founded in 1978 in Blackpool, B&M hit the headlines in 2013 when former Tesco (LSE:TSCO) head Sir Terry Leahy was appointed as chairman. He helped guide the retailer until early 2018. Today, a stock market value of over £5 billion is bigger than that of Morrisons at around £4.4 billion, and nearly twice that of Marks & Spencer (LSE:MKS). It currently operates over 650 UK B&M stores, nearly 300 Heron Foods and B&M Express stores and just 100 outlets in France. 

For investors, management caution regarding the outlook is worth noting. The clear 2020 boost from pandemic sales is far from guaranteed to continue over the months ahead. However, a forecast price/earnings ratio of 15 times compares to the general retail sector average of over 20, implying room for further upside. And another special dividend against the backdrop of many suspended or cut payments elsewhere is also not to be overlooked. In all, and with the company’s value offering likely to remain attractive in tough economic times, this update will please the bulls.

Positives: 

• Diversified product range
• Continued shareholder returns

Negatives:

• Cautious outlook comments  
• Exposure to currency movements 

The average rating of stock market analysts:

Buy