On Wednesday, HSBC updated the firm's valuation of B&M European Value Retail SA (BME:LN) (OTC: BMRRY), leading to a slight increase in the share price target. The new target is set at £7.20, a modest rise from the previous £7.15, while the Buy rating on the stock remains unchanged.
The adjustment follows a review of the company's financial year 2024 trading update. HSBC's decision to raise the target is based on a revised model and valuation, which resulted in a minimal change to earnings estimates and a small increment in the discounted cash flow (DCF)-derived target price.
The analyst's commentary highlights that B&M is currently trading at a calendar year 2024 estimated price-to-earnings (PE) ratio of 13.0 times. This is slightly higher than the UK Retail ex-Online sector's PE ratio of 12.6 times, yet below B&M's historical 5-year forward average PE of approximately 15 times.
The rationale behind the maintained Buy rating is rooted in B&M's competitive pricing strategy, which has demonstrated cross-border appeal and relevance. Additionally, the company's potential for long-term growth, strong free cash flow, and the possibility of issuing special dividends contribute to the positive outlook. The analyst notes that B&M's valuation deserves a premium compared to its historical average PE.
The next significant event for B&M investors and market watchers is the financial year 2024 results, which are scheduled to be announced on June 5, 2024. Stakeholders are waiting on these results for further insights into the company's performance and strategic direction.
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