B&M European Value Retail S.A. was upgraded to outperform from sector perform by the Royal Bank of Canada (TSX:RY) (RBC) with a target price hike.
Analysts at the bank raised the target price to 550p from 460p, with the broker believing the retailer is trading at a discount to both domestic and international peers.
B&M “should offer amongst the highest, most durable growth in the sector, driven by positive like-for-like sales and space expansion.”
The broker raised profit before tax guidance for 2024/25 between 4% to 7% due to the expectation for higher, price-driven like-for-like sales growth, along with a gradual ramp-up in UK space growth, it said.
The broker believes there may also be an opportunity to buy a package of new stores later this year.
RBC’s survey, it said, suggests B&M remains very price competitive while store standards have become more consistent, with further upside potential.
Analysts had been concerned about the underlying earnings (EBITDA) margin following a strong pandemic performance.
However, the discounter appears to be managing a tougher cost environment better than expected, helped by higher sales densities compared to pre-pandemic and more profitable new space, said the broker.
France and Heron Foods have the potential to generate close to 20% of group sales by 2025, becoming more material, with the broker believing B&M should be able to accelerate its store expansion in France.
RBC does note a few risks to B&M, mainly weaker than expected execution as a result of “growing pains” or higher than expected discounting.