Insider: buying at a FTSE 250 faller and high-flyer Rolls-Royce

A £200,000 high-yielding investment by the chair of B&M European Value Retail SA (LSE:BME) has backed the recovery of the discounter’s shares after their 50% slide since the start of last year.

Tiffany Hall, who joined the board in 2018, bought the FTSE 250-listed stock two days after B&M downgraded earnings guidance and said chief executive Alex Russo is to retire in April.

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The shares ended last week at 277.7p but continue to have the strong support of several City firms, including Panmure Liberum after it disclosed a new lower price target of 600p.

The broker said: “The shares have been very poor the past year as trading has consistently disappointed, but we remain steadfast that the cash returns profile and the quality of the earnings means this remains a Buy.

“Debt levels remain fine and we do not see a risk of a dividend cut despite the negative trading.”

Strong cash generation amid an industry-leading return on capital in excess of 30% ensured the group last month paid shareholders a special dividend of 15p a share. This followed December’s interim dividend of 5.3p and the previous year’s ordinary and special distribution of 34.7p.

Bank of America expects a total of 28.8p in relation to the financial year ending later this month, rising to 32.5p for a projected yield of 11.5% in the 2026 financial year.

It regards a price/earnings multiple below eight times as appealing given the company’s relatively resilient profitability, cash flow generation and growth opportunity. It points out that this is a 50% discount to the former blue-chip’s historical average.

The bank, which has cut its price target from 580p to 450p, added: “A return to positive like-for-like sales in the 2026 financial year could help rebuild confidence in the business and provide a re-rating catalyst to reduce the current discount.”

B&M last week lowered its 2025 earnings guidance to between £605 million and £625 million, a 3% downgrade at the midpoint due to current trading, economic uncertainty and FX headwinds.

The guidance served up another setback after investors were given some hope in January’s Golden Quarter update as B&M reported a return to like-for-like sales growth for December.

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Bank of America said a later Easter and softer year-on-year comparatives in the spring mean that sales have the chance of growing at the start of the new financial year.

It added: “Beyond calendar and weather impacts, cost pressures and macro uncertainty across the UK should limit supermarket price cuts and could encourage bargain shopping, which can benefit B&M's price gap.”

Peel Hunt, which has a price target of 500p, said Russo’s departure will be a loss as he has been instrumental in driving up store standards since taking the role in September 2022.

The group, which was founded in 1978 and joined the stock market in 2014, has 772 outlets in the UK under the B&M brand. There are also 340 sites trading as Heron Foods and B&M Express, plus 134 stores in France.

The broker added: “B&M is a fine business, with excellent growth prospects in both the UK and France. It is highly cash generative and the new CEO will inherit a business that is in good shape.”

B&M said last week that the search for a new chief executive is at an advanced stage. As well as the purchase by Hall at a price of 287.2p, senior independent director Oliver Tant disclosed an investment worth £21,400 at 285.3p.

On a roll

A director of Rolls-Royce Holdings (LSE:RR.) who bought the company’s shares at the lowly price of 126p in February 2023 has upped her holding at a cost almost 500% higher.

Non-executive Angela Strank, who previously worked alongside Rolls chief executive Tufan Erginbilgic at BP, made the £50,000 investment after Thursday’s forecast-beating results.

A regular buyer of Rolls shares since joining the board in 2020, she has recorded significant paper gains as the company’s valuation has rocketed to more than £60 billion.

The shares rose 16% on Thursday and ended last week at 744p, which compared with Strank’s latest buying at a price of 736p.

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Her optimism that Rolls shares have further to go is matched at Bank of America after it lifted its price objective from 830p to 1,150p. Friday’s upgrade came as the bank rolled forward estimates to 2027/28 and boosted its target multiple to 22 times earnings from 20 times.

The new target has been built on Erginbilgic’s mid-term guidance for £3.6 billion-£3.9 billion of underlying operating profit, 15%-17% operating margin and £4.2 billion-£4.5 billion free cash flow. The equivalent figures in the 2024 results were £2.5 billion, 13.8% and £2.4 billion.

Rolls intends to pay a dividend of 6p a share on 16 June and surprised the City with a £1 billion shares buyback, which Bank of America said highlighted confidence in future cash generation.