EFTA01385504.pdf

> Consumer Deutsche Bank B&M — Warwick Okines, BUY, close 413p, 450p tgt, 9% upside • Our preference is for value retailers. The UK macro environment looks The price gap vs. Tesco and Asda is widening — B&M is a price leader similar to the austerity years of 2011/12. Both in groceries and in our apparel consumer survey we can see evidence of a shift to value. 10% • B&M is a price leader, with a robust 15-20% price gap to Tesco and Asda. 5% • Value retailers also offer structural growth opportunities. Multi-price 0% discounters grew at a sales CAGR of 12% in 2006-16, illustrating their -5% ability to progressively gain market share. -10% • B&M has ambitious store expansion plans with a UK target of 950 overall -15% vs. existing 552 as of Sep-17, implying 40-50 openings p.a. over nine years. -20% -25% • We see attractive long-term growth opportunities: vs Asda vs Poundland vs Tesco -30% - Ja Woll — a German discount retailer: we forecast a sales CAGR of Apr 14 Aug 14 Dec 14 Apr 15 Aug 15 Dec 15 Apr 16 Aug 16 Dec 16 Apr 17 Aug 17 13% to 2020E. SCUMS: Deutsche Bank Oast data point: 10 November 17), company viatcaos - Heron Foods (a discounted convenience grocery retailer, purchased in Aug-17), from expanding its existing base of 257 stores. It would also make selling a greater range of non-ambient food products at B&M Q2 LFL better than Q1, despite Easter effect in Q1 economically attractive. 9% is A strong balance sheet provides return optionality. At only 1.6x leverage in Mar-18 we see potential for a 15p special dividend which would imply a 7% • III 5.5% dividend yield. 6% • 5% 1 • B&M trades on a CY18E P/E of 19.6x. This is only a 1.3x PEG. The valuation does not reflect B&M's growth trajectory. • Catalysts: Q3 results on 12-Jan. Related DB Research: 31i1 24 1111 I II 0 0 0 O. O1\11) -1% -(5 Neb O4 :4cyGor•N co.4 3ft.O.1 3 1 3 1 3 1 3 1b O t. <14/ ,‘O-OOOOO- ft, 13 4 1 4, B&M: Heron is flyinq (OkinesI '1, cb to. ri, N os European Non-Food Retail: Christmas turkeys and crackers (Okines) .19 V AU' Source: Deutsche Bank esleveles. company data Deutsche Bank Research. European Equity Focus —Januaty 2018 CONFIDENTIAL - PURSUANT TO FED. R. GRIM. P. 6(e) DB-SDNY-0086790 CONFIDENTIAL SDNY_GM_00232974 EFTA01385504