B&M Shares Have Tumbled 50% In 2022, Is Now The Time To Buy?

Value retailer B&M has felt the full force of rising costs this year, and the stock continues to trend lower, plummeting 50% this year.

But is a further decline warranted?

Of course, short-term issues still remain. UK inflation is currently at 9.8%, and rate hikes are still expected from the BoE. This has continued to worry investors, with economic instability remaining (alongside increased volatility resulting from the UK Government’s mini-budget).

B&M Share Price – Source: London Stock Exchange

Despite the current instability, we see positive signs for discount retailer B&M.

Cutting Costs

During periods of elevated inflation, shoppers will, of course, tend to shift to discount retailers. Therefore, with inflation currently at 9.9%, B&M could take advantage of the growing number of customers making the switch.

Furthermore, looking at its past performance, the stock has maintained stable revenue and sales during a difficult period for the UK. The group recorded a pre-tax profit of £525 million in FY22, the same as in FY21. The business also retained a large chunk of customers gained during the pandemic, as its two-year sales growth reached 13%.

In its trading update for Q1 FY23, revenue decreased 2.2% to £1.16 billion.

However, the company is not immune to the global economic environment. And rising energy costs have impacted transportation costs for B&M.

The firm made no change to its guidance, with FY23 Group adjusted EBITDA expected to
be in the range of £550m to £600m.

Time For a Discount

To evaluate current and potential future demand for B&M, we can assess online metrics such as website data and Google Trends.

Source: Semrush

Although B&M isn’t entirely online, the company has built a robust web presence. The group has seen consistent growth in organic traffic to its website over recent years, but 2020 is when it made significant progress.

Traffic jumped from 4.8 million in June 2020 to 8.4 million in just one year. As a result, in the same period, the stock jumped 44%.

B&M has been able to maintain a consistently high level of web traffic despite pandemic restrictions ending, with organic traffic in September coming in at 7.2 million. Even so, the firm’s share price has declined significantly this year.

The Rise of Discount Chains

There is no denying the previous big four supermarkets have been impacted by the rise of discount stores. In September, Aldi became the UK’s fourth largest supermarket chain, knocking Morrisons out of the last Champions League spot. The rise of these stores has seen the big four’s market share decline from 57.9% in 2010 to 51% in 2020.

Meanwhile, the UK’s discount market is set to grow 36.1% by next year to £32.5 billion, according to GlobalData.

Source: Kantar

Price-sensitive shoppers are opting for discount stores over traditional retailers, with less of a stigma surrounding the choice. As a result, hard discounters made up a 14.1% share of grocery sales in 2022 and which has been gradually increasing.

Potential Upside?

The disruptions are difficult to ignore right now. Supply chain issues are a considerable concern, and the global outlook seems bleak and B&M itself is not immune.

Even so, despite the disruptions, B&M has remained consistent. It has reported strong profit, has retained the majority of its customers, and has made no change to its full-year guidance.

The current market outlook is unstable at best, but B&M has remained resilient throughout, and its business model may benefit from the macroeconomic environment.

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