B&M European Value Retail SA (LON:BME) has accelerated its cash generation to a point that it should have headroom to pay out more special dividends, according to analysts at Liberum, who restarted coverage on the stock with a ‘buy’ rating and 600p target price on Tuesday.
In a note, the broker said the FTSE 100 discount retailer is maintaining a “much cheaper core grocery offer” versus the supermarkets, which they said has helped to drive “significant new customer acquisition, while maintaining margin strength and delivery broad category growth”.
“In June 2020, c.23% of B&M’s UK customers had not shopped at B&M in the previous five months, suggesting a significant number of consumers are discovering the stores for the first time. There is a clear opportunity to retain this cohort, while continuing to attract new shoppers, driven by the strength of the group’s general merchandise, discount offer…and its ongoing store roll-out, which has at least another 6-7 years”, Liberum said.
The broker added that an acceleration in like-for-like sales over the pandemic has strengthened the group’s cash flow and they now expected B&M to generate over GBP1bn in cash over the next three years, which they said allowed “scope for further material special dividends” that could be similar to the special payout of 25p per share announced in the company’s half-year results in November.
Liberum also highlighted that while the family shopper demographic remained core to the business, B&M was showing signs that its offer is “also beginning to appeal to a broader demographic spread”.
B&M shares were up 0.2% at 512p in mid-morning trading.