Based on today’s interim results and the fragile economic backdrop, I wouldn’t bet against this momentum continuing.

B&M profits soar

Group revenues jumped by a little over 25% to £2.24bn over the six months to the 26 September, thanks in part to the company’s out of town locations proving popular with bargain hunters. Like-for-like revenues at UK stores rose 23%.

This trend continued at B&M’s other businesses with frozen food-focused Heron Foods continuing to trade well over the period. The firm’s Babou stores in France also registered “positive like-for-like sales growth.“

All told, adjusted pre-tax profit soared 128.5% to £253.6m over the period. That’s a stunning outcome considering the hurdles faced in 2020. It’s even more impressive considering the sector in which B&M operates.  

The question is, will these numbers keep rising?

Promising outlook

Despite this week’s solid gains in the FTSE 100 and news that the UK has bounced back from recession, I don’t think we’re out of the woods yet. 

For one, it’s clear that getting everyone vaccinated against the coronavirus will take time. This lag is easily forgotten by markets desperate for something positive to focus on. In the meantime, the coronavirus death rate in the UK continues to rise.

The economic wounds wrought by the coronavirus will also take a while to heal. As many businesses struggle to make ends meet, there’s every chance unemployment levels will continue to rise. After all, many firms will see the pandemic as an opportunity to become more efficient, even if they don’t necessarily need to cut jobs. This tends to be a good thing for investors. Less so if you’re an employee.

The vulnerable state of peoples’ incomes could prove a tailwind for B&M and its capacity to keep growing. Indeed, the company plans to have unveiled a total of 40-45 new stores in FY21 (although it will also close 10 sites). Naturally, this bullishness bodes well for those holding the shares, even if like-for-like sales growth is expected to “moderate” over the second half. 

Good value

Based on the above, I suspect B&M will continue to trade well for a while. Naturally, the quandary for investors is estimating how much of this is already reflected in the share price.

On this front, I’m inclined to say, ‘probably not enough’. After all, the shares traded on just 15 times forecast earnings before markets opened this morning. That still looks pretty reasonable to me. The muted reaction to today’s results points to profit-taking rather than anything to be concerned about.

There’s also a dividend stream to consider. Today, B&M revealed that it would increase its half-year dividend by a stonking 59.2% to 4.3p per share. In addition to this, the FTSE 100 member also promised to pay out a special dividend of 25p per share. With many companies still cautious on their cash payouts, this is likely to attract more income seekers to B&M, further supporting its share price.  

The £5bn-cap has been a great share to hold over 2020. I wouldn’t be inclined to leave the party just yet. 

The post My call on this recession-proof FTSE 100 share has been spot on! Here’s what I’d do now appeared first on The Twelfth Magpie.

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• Not sure what a SIPP is? 3 reasons it could pay to know!
• Up 15%, B&M shares are leading the FTSE 250 higher! Is the comeback on?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended B&M European Value. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

With this in mind, here are a couple of companies that I think could do better than most if the economy does experience problems going forward, one of which reported to the market earlier today.  

Primed for growth?

Given its market capitalisation of just £76m, it’s to be expected that the majority of retail investors probably won’t have heard of Begbies Traynor (LSE: BEG). I think this could be set to change over the next year.

The market minnow has been around for almost 30 years and describes itself as “the UK’s leading corporate rescue and recovery practice“. In other words, it works with companies facing financial challenges — something that could increase substantially if Brexit proves the nightmare some are predicting.

For now, however, things are moving along fairly nicely. Revenue rose by £2m to £28m in the six months to the end of October with adjusted pre-tax profit also climbing by a little over 10% to £3.2m. This was, according to the company, “ahead of a strong comparative period” and the result of an increase in the number of new insolvency appointments and previous organic investments. 

In addition to a 14% increase to the interim dividend, the Manchester-based business also announced that net debt had fallen by a little under 9% to £6.3m by the end of the reporting period. 

Looking to the full-year, Begbies stated that it was well placed to meet current expectations, although results would be second-half-weighted. 

On almost 16 times earnings for 2018/19, the stock isn’t exactly cheap, especially at a time when markets continue to look susceptible to further falls. Nevertheless, for the potential growth on offer, I think this can be justified. I own a small amount of the stock and plan on retaining it so for some time to come. 

Discount demon

Another stock that I think might be worth holding if tougher times lie ahead is FTSE 250 retailer B&M European Value Retail SA (LSE: BME). That might seem odd when the rest of the industry is on its knees, but hear me out. 

If an economic downturn really is on the way, people won’t stop spending completely. Instead, they’ll likely head towards retailers that give them more for their cash. In such a situation, B&M will surely be able to benefit from the economies of scale that befit its near-£3bn market cap and offer exactly the sort of generic goods people want when funds are tight. That’s what happened with discounters in the aftermath of the financial crisis and we can be fairly confident that it will happen again. 

That’s not to say that B&M has been immune to the sell-off in the markets over the last couple of months. In early November, the stock hit 426p a pop. Today, the very same shares can be yours for 33% less. This leaves them trading on 14 times forecast earnings (and offering a secure yield of 2.9%). 

While clearly nowhere near as cheap as some retailers — particularly those in the clothing industry such as Superdry, Marks and Spencer and Quiz — again, I feel that this relatively high price can be justified.

The post Bothered by Brexit? I think this secret small-cap stock could be worth holding in 2019 appeared first on The Twelfth Magpie.

More reading

• Not sure what a SIPP is? 3 reasons it could pay to know!
• Up 15%, B&M shares are leading the FTSE 250 higher! Is the comeback on?

Paul Summers owns shares in Begbies Traynor Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

And even though the stock has hardly budged since my last article was published, I’m still positive on the outlook for the business.

Unfortunately, bad weather during the first few months of 2018 has hit sales, but management remains optimistic that the group will be able to catch full-year targets. According to a trading update issued by the firm today, adverse weather reduced the rate of growth in average daily like-for-like revenue to 1.3% for the period to the end of April. Overall revenue increased by 7% to £907m in the four months and 6.2% in constant currency.

It looks to me as if geographic expansion has been Grafton’s saviour. The company owns the market-leading building merchanting business in Ireland, which delivered constant currency revenue growth of 7.6% for the period, while its business in the Netherlands saw revenue increase by 20.5%. Meanwhile, even though the snow hammered trading at its established UK business, the group acquired Leyland SDM (the largest independent specialist decorators’ merchant in London) on 16 February and this deal helped to increase UK revenue by 5% overall.

On track for growth 

Overall it looks as if, including acquisitions, Grafton’s earnings are set to grow at a high single-digit rate for the full year. City analysts have pencilled in growth of 7% for 2018, followed by an increase of 8% in 2019. Based on these targets, the stock is trading at a forward P/E of 12.8, which does not seem too demanding for a growth stock, even though there is some uncertainty about the state of the construction industry here in the UK. However, with net gearing of only 5.3%, the company seems well placed to weather any market turbulence. 

As well as the company’s attractive valuation, Grafton also has a history of increasing its dividend per share by around 10% per annum. The stock currently supports a dividend yield of 2.2%.

Value hunters 

Another dividend growth stock that has recently popped up on my radar is B&M European Value Retail (LSE: BME). 

It might look expensive as the shares currently trade at a forward P/E of 21.3, but the company is growing rapidly. City analysts are expecting earnings per share growth of 21% for 2018 and 19% for 2019. Based on these estimates, the stock is trading at a PEG ratio of 1.1.

It’s BME’s dividend potential that really gets me excited. The shares currently support a dividend yield of 1.7%, but the company is expected to increase its payout by 46% this year and a further 16% for 2019. Based on these estimates, the shares support a 2018 dividend yield of 2.1%, growing to 2.5% by 2019.

With the payout set be covered 2.3 times by earnings per share, there’s plenty of room for growth in the years ahead, especially if earnings per share continue to rise at a double-digit rate. There’s no reason why they can’t. BME is investing heavily in its value proposition across the UK and Europe and reported strong trading during the last quarter of 2017, underlining the appeal of discount retailers to increasingly budget-conscious consumers.

The post 2 FTSE 250 dividend growth stocks I’d buy with £5,000 today appeared first on The Twelfth Magpie.

More reading

• Not sure what a SIPP is? 3 reasons it could pay to know!
• Up 15%, B&M shares are leading the FTSE 250 higher! Is the comeback on?

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.