The remnants of bank and broker reaction to B&M European Value Retail SA's (LSE:BME) profit warning earlier this week continue to trickle out.
On Thursday it was the turn of JP Morgan, which cut its price target to 299p from 320p. The bank reiterated its “underweight” rating, meaning it sees further downside.
JP Morgan tweaked its earnings and free cash flow forecasts by 5% and 10%, citing B&M’s second profit warning in a week. It believes the market is still too optimistic about earnings and cash returns.
The key issue is B&M’s UK gross margin, which measures how much profit it makes on each sale after accounting for costs.
JP Morgan expects a two percentage point reset, in line with market expectations.
But it warns this might still be too optimistic. If margins fall by three percentage points instead, it sees fair value at 225p, suggesting another 20% downside.
New management and strategy uncertainty add to the risk. JP Morgan prefers supermarkets Sainsbury’s and Tesco, both rated “overweight”, meaning it sees more upside there.
The shares, which were flat at 284.3p, have fallen 20% in the year to date.