B&M has reported in-disappointing UK B&M sales growth and we expect market consensus PBT of £247m (IAS 17) to reduce by around £10-15m (mid single digit %). There is no update on Germany. We expect the share price to reflect lower forecasts and some de-rating.
Companies: B&M European Value Retail
Although we remain sellers of B&M it is hard not to be impressed with its ambition and the pace at which it moves. Two recent acquisitions, management change in Germany and pushing through a major warehouse investment in Bedford, as well as opening midhigh single digit percentage new space in the core B&M chain all attest to this.
B&M has reported 3Q UK B&M stores LFL of -1.6% against our expectation of +2% and total UK sales growth of +4.4% (WH +9.5%). This is worse than expectation in our view and compares with underlying +3.6% in 1Q and -1.6% in 2Q, and comparatives 1-3Q 2017/18 of +6.3%, +7.7% and +3.9% (1Q figures in each year adjusted to exclude Easter timing differences). The company points to the exit rate of UK LFL being better at +1.2% and continuation of this rate into 4Q (where the comparative will weaken over the quarter).
BME has reported 3Q UK LFL sales growth of 3.9% v consensus of around +4% and a tough comparative of +7.2%. Growth has come in lower margin food and FMCG which we believe continues to be vulnerable to price competition for food retailer own brands and in any event dilutes the benefit of sales growth at the bottom line. Germany sales rate declined from +11% 1H to +8% 3Q perhaps indicating negative LFL getting worse in short term. Management is happy with existing EBITDA consensus. The only price affecting consideration today is whether a beat was required instead of an impressive in-line performance given the 19x PER for 4/19E. We remain sellers on over-expansion and food model vulnerability grounds.
Full year consensus forecasts likely to hold as UK B&M sales UK LFL was +7.7% in 2Q – however, this was achieved with a 80bps decline in gross margin. Overall PBT of £86.8m (+17.8%) was slightly below consensus despite a £2.4m EBITDA contribution from newly acquired Heron Foods. The next key test 3Q trading against start of marketing-driven sales acceleration of 2016/17. Germany had a difficult 1H with EBITDA down 22.5% - this casts doubt on B&M’s ability to manage acquisitions. The company is making fairly neutral comments on UK prospects for 2H (“well positioned”, ”last year’s exceptionally strong Christmas performance”) and expects to recover 1H gross margin fall if seasonal more recent trade from company.
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We note this morning’s announcement from Boohoo Group strongly refuting several allegations made in a short-selling note published yesterday afternoon. In our opinion arguments made in the short selling note are flawed and do not disclose any new or unexpected information about the Group. The unprecedented market backdrop resulting from the COVID-19 crisis has only acted to highlight the strengths of Boohoo’s agile, pure play, e-commerce model and we see current share price weakness as offering an attractive entry point.
Sale of Fowler Welch
Companies: Dart Group
Boohoo Group has announced the acquisition of the remaining 34% of shares in prettylittlething.com (‘PLT’).
- Terms of the deal: Boohoo Group has acquired the remaining 34% of shares in PLT for initial consideration of £269.8m, comprising cash consideration of £161.9m and share consideration of £108.0 including £54m of share consideration subject to an 18 month lock-up, £54m of share consideration subject to a 24 month lock-up payable on completion. A further £54.0m of contingent consideration is payable if the Group’s share price averages 491p (+46.7% on last night’s closing price) over a six-month period between completion and 14 March 2024. PLTs management team will remain in the Group, with the structure of the share consideration providing strong alignment of management interests with the wider Group shareholder base.
After launching a £1bn recapitalisation by way of a rights issue at a price with a heavy discount, the UK-based restaurant and (the largest) hospitality group, Whitbread, saw its share price plummet by 13%. The market movement reflects investors’ concern about the uncertain duration of Whitbread’s business downturn.
Whitbread was on our list of issuers likely to be wrongfooted by the crisis the day before the rights issue announcement.
MMH has provided an update, which confirms it significantly outperformed the market during Q1. During lock down there has been some signs of pent up demand both in aftersales and new/used vehicles with over 3,700 vehicles sold during lock down in addition to the March order book and Q2 order book. We believe MMH has sufficient balance liquidity as well as support from its OEM and banking partners.
Companies: Marshall Motor
Directorate change: DWF has announced that Andrew Leaitherland will step down as Group CEO and a managing partner of DWF Law LLP and DWF LLP with immediate effect and will be replaced by the Group’s Chairman Sir Nigel Knowles. Sir Nigel has over 40 years of experience in the legal sector and was previously. Global Co-Chairman and Senior Partner of DLA Piper. We believe he has the experience and leadership qualities required to lead the Group through the near-term challenges it faces. Chris Sullivan, Senior Independent Non-Executive Director, has been appointed as interim Chairman.
Companies: DWF Group
FY19 was a transformational year, with the addition of seven new hostels to the estate/pipeline and strong growth in Revenue (+26%) and adj EBITDA (+11%) demonstrating that the model can work across European cities. Significant liquidity headroom remains following the RCF extension and £5m overdraft facility recently agreed.
In FY20, prior to COVID-19, management delivered on its four key proof points, including growing group EBITDA and membership at Roadside. The business model is proving resilient during COVID-19 and we have reduced our FY21 EBITDA forecast by only 7% since the outbreak began – much less than most.
Companies: AA Plc
Following last week’s trading update, in this note we revisit the progress Inchcape has made, along with the structural benefits it has gained, in focusing its business on its distribution model. Whilst there is no doubt the Group faces pressures at present, we believe it has sufficient liquidity to withstand this crisis within its current banking facilities and see scope for further significant cost savings and efficiencies that should help mitigate current pressures, which we expect hear more on at the H1 results in July.
Unsurprisingly, the limited business progression in H1 19/20 and the pandemic outbreak towards the end of the year have resulted in a significant FY profit contraction.
However, the unprecedented pandemic crisis seems to be dragging all the industry to the same starting line, in terms of market transformation. In particular, after the group showed a better than expected cash position after additional RCF and CCFF and substantial cost-savings, this gives new hope to the market.
Companies: Marks And Spencer Group
FY20 results report EPS slightly ahead (4%) of our previous forecast. Net debt (pre-IFRS 16) was also slightly better than expected at £6.9m (N+1SE: £7.5m). The Group had a very strong start to FY21, achieving PBT of £6.0m in Q1 and trading is expected to be strongly ahead of budget in May. The order book for June is also encouraging. This is an impressive result against the significant challenges posed by COVID-19 for the aviation industry. Performance in H2 will likely depend upon the recovery in activity levels in Private Jets and Safety & Security, but Air Partner is already seeing some signs of recovery here. We believe the Group is well placed to achieve a strong full year result given the diversity of its model and the strength of the balance sheet.
Companies: Air Partner
Topps’ sale & leaseback of its head office and warehouse for a consideration of £18m will help give the group total liquidity available of £42m heading into June. This is a very strong position considering our analysis suggests monthly cash burn from trading may well average no more than £2m over June-August. At the recent interims, the group outlined its store re-opening progress and is well on track to have all c.350 open on a ‘controlled entry’ basis by the end of June, giving further grounds for optimism. We will re-instate our forecasts at the next update, which is due in early July.
Companies: Topps Tiles
Card Factory is a deep value retailer, offering a core product at 99p that retails for twice that at high street competitors. Despite the wide price gap, management is adamant that it does not need to raise prices to maintain profitability, with a range of actions in progress to optimise both top line and cost structure. The share price has fallen steeply, but this could present an opportunity as there are a number of potential catalysts.
Companies: Card Factory
Loungers continues to outperform, delivering the scarce trinity of LFL sales growth (5.4%), unit growth (10 openings) and margin growth (40bps). This drove a 22% increase in Revenues and 26% increase in EBITDA in the first half of FY20E.
What’s new. This morning Purplebricks UK has provided an “update regarding current trading and the potential impact of COVID-19 and Govt guidance on the UK housing market.” Key points are:
1. Purplebricks first priority is health of people and customers: its online business model includes “video valuations, virtual viewings, connecting customers with potential purchasers via Purplebricks online platform.”
2. Govt restrictions on movement are weakening vendor and purchaser activity; deferral of completions would have a further negative impact.
3. Immediate cost-saving measures will materially reduce cash burn including suspending TV and radio advertising, reducing online marketing, taking advantage of the Government Job Retention Scheme.
4. Purplebricks currently has net cash of £35m and no debt.
Companies: Purplebricks Group