Tuesday, 17 November 2015

UK reporters today of interest: B&M Euro Value Retail and easyJet

A couple of consumer names today interested me in UK reporting.  First easyJet which I last discussed here back in May concluding that:

'...look beyond some inevitable summer strikes and the future remains bright for EasyJet. Today's volatility is an opportunity for non-investors to buy the stock'

That proved to be a reasonable call with the 1600p share price then rising to 1800p+ by earlier this month.  The shares are down today though - and it is beyond the obvious link with a shaken up travel sector after the events of last weekend. As I noted on Twitter earlier:

On CC. Shares down near 3% on no special div - bit of a greedy hope? Most free cash paid out (3.4% div).

I could find little fundamentally wrong with the easyJet statement.  Management noted on the regulatory statement that pricing remained good and results were ultimately more demand driven.  On this front they observed that 'We expect demand in our markets to be sustained and for easyJet to continue to be a winner in its markets. We will see passenger growth of 7% a year, sustaining margins through rigorous cost control and the benefit of fleet up-gauging, resulting in positive profit momentum'

At around a prospective x10 EV/ebit multiple and with the aforementioned 3%+ yield the company's continued strong customer interaction and new initiatives (a loyalty card) continue to impress.  Yes on market volatility May's c. 1600p level is attractive but frankly for non-holders so is the current c. 1700p level.  

Turning to a name that I have not mentioned before on Financial Orbit B&M Euro Value Retail this austerity-friendly retailer has the sector giant Terry Leahy (of Tesco) fame as chairman.  A float just over a year ago was reasonably successful as the company continued to expand its store base. Note however the recent slide back. As I noted earlier:



Am I that surprised B&M Euro Value Retail down 5% this morning? No...lfls down to 1%+ & ebitda driven by new build

The trouble as i see it is not just the implied cannibalisation from the above statement but also that the company's key expansion areas are in the more expensive and retail crowded south of the country aka not exactly their northern heartland:



The company is reasonably cash flow generative and turning off the capex expansion tap could open up an easyJet esque 3%+ free cash flow generation.  The difference however is that unlike easyJet the company is trading on a x20+ EV/ebit multiple.  Maybe I will have another look around the current 52 week lows in the 250s but not before.  


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