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Investors In B&M European Value Retail SA (LON:BME) Are Paying Above The Intrinsic Value

Does the share price for B&M European Value Retail SA (LSE:BME) reflect it’s really worth? Today, I will calculate the stock’s intrinsic value using the discounted cash flow (DCF) method. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. If you are reading this after January 2018 then I highly recommend you check out the latest calculation for B&M European Value Retail here.

What’s the value?

I will be using the 2-stage growth model, which takes into account the initial higher growth stage of a company’s life cycle and the steadier growth phase over the long run. To start off, I pulled together the analyst consensus forecast of BME’s levered free cash flow (FCF) over the next five years and discounted these values at the rate of 8.3%. When estimates weren’t available, I’ve extrapolated the average annual growth rate over the previous five years, capped at a reasonable level. This resulted in a present value of 5-year cash flow of £751.2M. Keen to understand how I calculated this value? Read our detailed analysis here.

LSE:BME Intrinsic Value Jan 30th 18
LSE:BME Intrinsic Value Jan 30th 18

The infographic above illustrates how BME’s earnings are expected to move in the future, which should give you an idea of BME’s outlook. Secondly, I calculate the terminal value, which accounts for all the future cash flows after the five years. I think it’s suitable to use the 10-year government bond rate of 2.8% as the steady growth rate, which is rightly below GDP growth, but more towards the conservative side. After discounting the terminal value back five years, the present value becomes £2,684.4M.

The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is £3,435.5M. To get the intrinsic value per share, we divide this by the total number of shares outstanding. This results in an intrinsic value of £3.43, which, compared to the current share price of £4.2, we see that B&M European Value Retail is fair value, maybe slightly overvalued and not available at a discount at this time.

Next Steps:

Valuation is only one side of the coin in terms of building your investment thesis, and it shouldn’t be the only metric you look at when researching a company. What is the reason for the share price to differ from the intrinsic value? For BME, I’ve compiled three fundamental factors you should further research:

PS. The Simply Wall St app conducts a discounted cash flow for every stock on the LSE every 6 hours. If you want to find the calculation for other stocks just search here.


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.

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