EU CONSUMER STAPLES: B&M; CEO to retire, 3% cut to FY EBITDA (x2)
(BMELN; Ba1/BB+; Stable) (Equities -6%)
Equities heading towards all time lows - a common enough occurrence. Today it will reflect concern that it has struggled to produce LFL sales growth through 2024 despite operating in a environment where consumers were/are trading down (it is a discounter).
The CEO departure is seen as a push out by most analyst (see below), after he continued to guide optimistically but failed to deliver. That is contrary to a few months ago when we noted "equity analyst are (largely) backing management's view; that the pricing reset is over and has now set a runway for LFL growth."
We also said then "given strong BS governance we see credit low beta for now. Less room for excuses come Q4 results." Latter looks like it may given way now - we see FY EBITDA guidance implying a fall of -3% to -8% in 2H EBITDA (prev. guidance -4% to +4% - i.e. flat at the midpoint).
Note given new store openings, EBITDA generally should hold up better - e.g. in 1H, UK LFL sales was -2%/-5% in Q1/Q2, yet gross 30 store openings added +7% to UK helping net revenues to +4% and EBITDA +2% (margins were flat). We know 3Q LFL was -3% (net +3%) yet it has now revised down EBITDA guidance to a circa -5% fall in part on "current trading performance". Unclear what happened between Jan when it was saying 'Dec and Jan to Date/9th LFL growth positive' to now to cause that revision down.
Re store openings plans it had guided to;
- 15 new B&M stores in UK and 6 in France this half (6m to March '25)
- Similar 45 in the UK and at least 10 in France in FY26
- Another 14-16 stores under Heron Foods Banner between 2H25-FY26
The capex use is limited for new stores at generally 2-3% of sales (FY24: £125m vs. FCF of €500m) - indic. of skew away from owned freehold properties (property totalled £85m on BS last year). Since FY20/early 2020 it has added 150 new stores (+14%) which has caused lease liabilities to inflate 5%, net debt including bond issuance by +30% and lease cash expenses (principal + interest) +16% to £240m/yr. They have been more than offset in earnings and cash flow growth of circa 60%/+£300m - on part on 300bps of margin expansion (benefit of scaling).
B&M is still a interesting name in sterling. The recent negative updates and outlook are unfortunate as it otherwise would likely be a value view (as it has been in the past). We wait to see who takes the CEO role and how they approach the expansion plans and recent LFL falls. £31s/30s are both -0.2pts/+5bps cheaper today.
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AUSSIE 10-YEAR TECHS: (H5) Resistance Remains Intact
- RES 3: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 2: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 1: 95.615/851 - High Dec 31 / High Dec 11
- PRICE: 95.510 @ 15:51 GMT Jan 24
- SUP 1: 95.275 - Low Nov 14 (cont) and a key support
- SUP 2: 94.477 - 1.000 proj of the Dec 11 - 23 - 31 price swing
- SUP 3: 94.495 - 1.0% 10-dma envelope
The Aussie 10-yr futures contract continues to trade below the Dec 11 high of 95.851, and has traded through the Dec low. A stronger bearish theme would expose 95.275, the Nov 14 low and a key support. Clearance of this level would strengthen a bearish theme. For bulls, a confirmed reversal and a breach of 95.851, the Dec 11 high, would instead reinstate a bull cycle and refocus attention on resistance at 96.207, a Fibonacci retracement point.
FED: MNI Fed Preview-Jan 2025: Keeping Rate Cut Hope Alive
We've just published our preview of the January FOMC meeting:
- The FOMC will keep the benchmark Fed funds rate on hold on January 29 for the first time in four meetings, as it shifts to a more patient phase of its easing cycle after delivering 100bp of cuts.
- The forward guidance adopted in December points to a data-dependent approach to assessing the “extent and timing” of additional rate adjustments. To this end, there has been only limited inflation and labor market data since then, while the Trump administration’s policies and their potential impact on the economic outlook are still in a formative stage.
- With minimal Statement changes expected and no new rate/macro projections, the focus will be on Chair Powell’s press conference which will likely repeat the same themes heard six weeks earlier.
- As such, the risks to the market reaction to the meeting lean slightly dovish in the context of only one more full rate cut being priced for the cycle.
- While he won’t be able to add any additional commentary on the Fed’s response to prospective fiscal/trade/immigration policy shifts, we suspect Powell will remain optimistic on the inflation trajectory and reiterate that 50bp of cuts remain the FOMC’s baseline scenario this year. In other words, the bias toward easing remains intact.
- Additionally, Powell probably won’t completely rule out another cut as soon as the next meeting in March, while being careful to couch any future moves as data- and outlook- dependent, and emphasizing that the Fed can afford to be patient so long as the economy and labor market remain solid.
Note to readers: MNI’s separate preview of sell-side analyst summaries to follow on Monday Jan 27
MACRO ANALYSIS: MNI US Macro Weekly: Fed Remains Firmly On Track To Hold
- Data in the week ahead of the January Fed meeting was thin and overall mixed, with President Trump’s apparently softer tone on tariffs helping implied rates soften slightly toward end-week.
- January’s preliminary Services PMI reading unexpectedly fell to its lowest since April 2024, though had some slightly less dovish details.
- Weekly continuing claims provided a surprise on the weak side, just exceeding recent highs, but the broad report (including initial claims a touch higher than expected) didn’t materially change the story of firms dampening down on re-hiring rather than turning to layoffs to manage headcount.
- Looking ahead to next week, the FOMC will keep the benchmark Fed funds rate on hold on January 29 for the first time in four meetings. With minimal Statement changes expected and no new rate/macro projections, the focus will be on Chair Powell’s press conference.
- He won't totally rule out a cut at the next meeting in March, but he’ll probably reiterate that the Fed can remain patient on its next move until receiving more clarity on both inflation data and the government policy outlook (i.e. not until later in the year). Markets continue to price between 1 and 2 cuts by end-2025.
- Aside from Tuesday’s preliminary durable goods report, data for the coming week is backloaded with the highlights being the first estimate of real GDP growth in Q4 on Thursday before the monthly PCE report for December on Friday.
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