Credit Suisse has slashed its price target for value retailer B&M European Value Retail SA (LSE:BME)’s on doubts over its ability to sustain the growth it saw during the pandemic.
The investment bank maintained a 'neutral' guidance on the shares, citing “questions over COVID years’ sales and margin retention”. but cut the target to 460p from 600p previously.
Shares in the retailer were up 0.59% this morning but have fallen 17% since a profit warning yesterday and stood over 620p six months ago, which was before its long-time boss announced he was standing down.
"B&M is very cheap vs history; however, we are less confident around how much of the COVID years’ boost to sales densities and margins will be maintained," said Credit Suisse.
The broker is predicting current year B&M sales densities are 7% above pre-pandemic levels, gross margins 80bp (0.8%) higher and underlying profit (EBITDA) margins 21bp higher, but those predictions come with a swathe of caveats.
"In what is likely to be a very tough environment for retailers and consumers, this would still represent a strong result, in our view, but we do see more downside than upside risk
"Assuming a 15% cut to ordinary and special dividends the shares yield 8.9%; however, without a clear catalyst and what could be a long consumer downturn. we remain neutral."