Shore Capital has kicked off coverage of B&M European Value Retail SA (LSE:BME) with a “hold” at 241p, warning that Britain’s biggest variety discounter may need to cut prices, and therefore margins, to get growth back on track.
The broker sees only 4% upside to its 250p fair value estimate.
The problem is like-for-like sales in the UK, which makes up about 80% of group revenue and 90% of profits.
These have been sliding, particularly in fast-moving consumer goods, where volumes as well as sales have shrunk and market share has been ceded.
While general merchandise showed growth in the latest quarter, food and household lines are still going backwards.
ShoreCap points to several culprits: B&M’s prices not stacking up against supermarket loyalty schemes, shoppers shifting to private-label ranges that do not suit variety retailers, patchy store standards, and questions over the product mix.
New store openings are still driving overall revenue growth, with 36 net additions in the last financial year and more to come.
Management has talked of 1,200 sites in the UK, a figure the analysts find “ambitious”, but one backed for now by solid returns on new openings.
Margins, though, look vulnerable. After climbing by more than three percentage points in six years, ShoreCap thinks they will have to give, falling from 10.6% in financial year (FY) 2025 to a forecast low of 8.4% in FY27 before like-for-likes recover.
Valuation is mixed. On the one hand, the shares trade on a lowly 8.2 times expected 2026 earnings and a double-digit free cash flow yield, both cheaper than the sector.
On the other, the analysts argue that “short-term caution” is warranted until B&M bites the bullet on prices and profits. For now, the advice is to stay on the sidelines.
The shares were off 5% at 226.7p.