EFTA01385504

> 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 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. • B&M is a price leader, with a robust 15-20% price gap to Tesco and Asda. • Value retailers also offer structural growth opportunities. Multi-price discounters grew at a sales CAGR of 12% in 2006-16, illustrating their ability to progressively gain market share. • B&M has ambitious store expansion plans with a UK target of 950 overall vs. existing 552 as of Sep-17, implying 40-50 openings p.a. over nine years. • We see attractive long-term growth opportunities: - Ja Woll — a German discount retailer: we forecast a sales CAGR of 13% to 2020E. - 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 economically attractive. 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 5.5% dividend yield. • 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: B&M: Heron is flyinq (OkinesI European Non-Food Retail: Christmas turkeys and crackers (Okines) The price gap vs. Tesco and Asda is widening — B&M is a price leader 10% 5% 0% -5% -10% -15% -20% -25% -30% Apr 14 Aug 14 Dec 14 Apr 15 Aug 15 Dec 15 Apr 16 Aug 16 Dec 16 Apr 17 Aug 17 SCUMS: Deutsche Bank Oast data point: 10 November 17), company viatcaos Q2 LFL better than Q1, despite Easter effect in Q1 9% 7% • 6% • 5% 1 vs Asda vs Poundland I I I -1% -(5 Neb 4 :4 r•N 43 1 3 01 3 01 3 01 3 O.1b 1 O\11) <1/4 1 3 4 1 4, O Go co. O. O O-OOOOO- N os '1, cb to. ri, cy ft. ,‘ ft, t. .19 V AU' Source: Deutsche Bank esleveles. company data vs Tesco 2431i1 II I 1111 Deutsche Bank Research. European Equity Focus —Januaty 2018 CONFIDENTIAL - PURSUANT TO FED. R. GRIM. P. 6(e) CONFIDENTIAL DB-SDNY-0086790 SDNY_GM_00232974 EFTA01385504