B&M European Value Retail SA (LSE:BME) is being judged from two angles by the City, with Deutsche Bank turning more cautious on the cost of its turnaround while Shore Capital argues the risks are already priced in.
Deutsche has cut its price target to 175p from 180p and reiterated its 'hold' rating, leaving the shares trading close to fair value after their recent recovery.
The broker said B&M showed early signs of like-for-like sales growth in December under its new chief executive, helped by trials to improve product availability, cut the number of stock keeping units and sharpen pricing.
However, Deutsche remains sceptical about how sustainable that sales improvement will be and how much damage the strategy could do to margins.
While investment in the offer is seen as necessary to make the business relevant again, the bank said management’s ambition to return to double-digit EBITDA margins looks too optimistic at this stage.
ShoreCap takes a more upbeat view. Its analysts said the market “wants to buy this”, pointing to a very low valuation if current earnings forecasts prove right.
They described the new management’s actions as sensible, even if they would prefer slower UK store expansion and an eventual exit from Heron Foods.
ShoreCap said recent UK trading has improved, with a weak October and November followed by around 3% like-for-like growth in December and a positive start to January.
Some of that was driven by heavier clearance, but it also saw signs of better full-price volumes, suggesting the “Back to Basics” strategy may be starting to work.
The broker acknowledged risks, including further price investment squeezing margins and the complexity of B&M’s general merchandise supply chain.
Even so, it argued the shares already discount a lot of bad news. After a cut to EBITDA guidance, the stock still rose, underlining how cautious expectations have become.
On that basis, Shore Capital maintains a speculative buy, calling B&M a higher-risk story but one where even modest sales growth could unlock meaningful upside from a depressed valuation.
In afternoon trading, the shares were down 5% at 165.55p.