Rising freight costs shouldn't hit B&M too much, says RBC

17th Jun 2024 07:55

(Sharecast News) - RBC Capital Markets has said that rising freight costs shouldn't have a material impact on budget retail B&M, as it kept an 'outperform' rating on the stock.

"Freight rates have been rising again in recent weeks, due to global capacity being more fully employed, Red Sea diversions and stronger demand for containers," the broker said in a research note on Monday.

"Rates have now moved up in excess of their February peak. [...] Although the current situation is not as acute as during the 2021 Suez Canal blockage and the global pandemic, we are likely to see a headwind for gross margins from late 2024 and in 2025."

Nevertheless, RBC said that bigger volume players such as Primark owner Associated British Foods have a "scale advantage".

RBC said that hardlines retailers have move exposure, with freight accounting for at least 6-7% of the cost of goods sold and the companies having a higher margin sensitivity than those in the apparel sector.

"Around 30% of B&M's sales come Asia but the vast majority of this is low ticket items, with FMCG (50%) sourced locally. Also, we think B&M has been able to use its strong volume growth to negotiate good terms on freight, so we don't expect much of an effect on its P&L," the broker said.

B&Ms shares were up 1.2% at 468.7p by 0901 BST.