City broker Panmure Liberum has reassured investors about a serious slide in B&M’s share price, arguing that it’s based on a ‘one-time error’ and doesn’t suggest underlying trouble.
B&M surprised markets this morning when it released a trading statement showing a significant accounting error and the related departure of its chief financial officer.
The FTSE 250 retailer said it had failed to recognise as much as £7m in overseas freight costs, which disappeared after a “system update”.
Its share price plummeted nearly 18 per cent in early trades, sliding to an all-time low.
“Just when it looked as if life couldn’t get any worse for B&M, along comes an accounting error… the situation is highly embarrassing for the board and even worse for shareholders,” Dan Coatsworth, head of markets at AJ Bell, said.
B&M has struggled with supply chain disruptions and wage inflation, with a series of worse-than-expected profit updates worrying investors.
The significant turnaround plan it announced this year, which includes includes cutting prices and reducing the number of lines of products, read “like a beginner’s guide to retailing,” Coatsworth said.
“Now we’ve had financial mistakes on top, so it’s only natural to wonder if the business has well and truly gone off the boil.”
Evgeniy Batchvarov, senior associate analyst at Bloomberg Intelligence, added that the error “undermines B&M’s credibility“ as it tries to progress with a turnaround and stabilise its margin.
Panmure analysts ‘still confident’ in B&M
Analysts at Panmure Liberum, meanwhile, said the error was a “one-off” rather than “evidence of ongoing margin pressure or trading weakness”.
“The issue stemmed from a system update that led to a misclassification of freight costs, which management has since identified and corrected… we are reassured this is a technical accounting matter.”
While the analysts reduced their target share price for B&M from 450p to 410p – it was 178p as on Monday morning – they retained a ‘Buy’ rating.
“We are not concerned that underlying trading is further deteriorating… [we] maintain our dividend forecasts given the strong balance sheet and robust cash generation,” they said.
“We [have] confidence in management’s recent ‘Back to Basics’ turnaround, though we acknowledge earnings momentum remains volatile.”