Morgan Stanley downgrades B&M to 'underweight'

21st Jun 2024 09:57

(Sharecast News) - Morgan Stanley downgraded B&M European Value Retail on Friday to 'underweight' from 'equalweight' as it said like-for-like growth is slowing and it expects margins to contract year-over-year in FY25, which is a worse outlook than UK retail peers.

The bank, which cut B&M's price target to 433p from 575p, said it expects LFL will decelerate from here and miss consensus. It noted that over the last three quarters, B&M UK's LFLs have trended one percentage point below the UK retail average and 500 basis points below Tesco's.

"We expect this underperformance spread will continue for both pricing and volume reasons," it said.

"Our analysis raises questions around the sustainability of current margins, given a combination of sizeable gross margin expansion versus pre-Covid and worsened price gaps in fast moving consumer goods versus long-term history."

On valuation, JPM said that while the stock has de-rated -15% year-to-date, it does not believe the shares are overly cheap.

The bank said it was cutting its earnings per share estimates by 11%, taking it 8% below consensus on average over FY25/FY27.

"On our numbers, multiple trades on 12.8x FY25e P/E, which does not leave much cushion versus UK Retail on 12.2x and has room for further de-rating."

At 0955 BST, the shares were down 2.1% at 467.20p.