"B&M has a proven business model that offers customers sensational value," boasts the latest retailer wishing to join the stock market. OK, but if your plan really is to value the business at £2.5bn, that's not such a sensational bargain. It would be another case of: nice company, shame about the price.
B&M is undoubtedly good at what it does – short supply chains, fast stock turnover and seasonal ranges – and a boardroom led by chairman Sir Terry Leahy, of Tesco fame, ticks the right boxes. And, yes, there is plenty of room to grow by expanding southwards.
But £2.5bn would equate to 19 times last year's ebitda, or earnings before interest, tax, depreciation and amortisation. Nor can the interest line be ignored, given that B&M intends to start public life with borrowings representing three times ebitda.
That financial leverage hints at why B&M is floating. It wants "an appropriate long-term ownership structure", meaning the private equity backers want to sell down. Clayton, Dubilier & Rice have a 60% stake.
Fund managers, it appears, have turned picky about meeting private equity's lofty price expectations. Fat Face, a clothing chain, has pulled its float and Saga, the car and home insurer for older people, has cut its pricing to the bottom of the published range.
B&M has a better story to tell on the growth front than these companies. But 19 times top-line earnings for a debt-heavy business with an unproven German adventure? Too much.
