B&M European Retail (BME.L)

• B&M is a discount retailer with stores in the UK and France. The stock is currently trading at a 9-year low.
• Headwinds:
  • The company is experiencing a slowdown in sales, with UK like-for-like sales declining by 3.1% in 2025.
  • Profit margins have been negatively impacted by foreign exchange rates and higher national insurance contributions.
  • Discount stores, in general, have fallen out of favor as consumers shift to online shopping for certain products.
• Bullish Case:
  • The company has a new CEO and a stated path to future growth.
  • It has a strong history of generating cash, producing almost £3 billion of free cash flow over the last five years.
  • A significant portion (70%) of this cash flow has been returned to shareholders through dividends.
  • The stock is valued at a low multiple of 7 times earnings.
  • The company has some debt on its balance sheet that was mentioned as a risk factor.

Takeaways

• B&M could be considered a value investment due to its low stock price and valuation of 7 times earnings.
• Investors might find this attractive if they believe the new CEO can successfully navigate the current headwinds and that the market has overly punished the stock for the recent sales slowdown.
• The company's ability to generate significant cash flow and its history of paying dividends could provide a degree of stability for investors. The debt level is a key point to monitor.

Greggs (GRG.L)

• Greggs is a popular UK bakery chain that was previously an investor favorite but has seen its stock fall almost 40% this year.
• Headwinds:
  • The company is dealing with lower profit margins due to increased national insurance payments.
  • It is also facing challenges with high levels of shoplifting.
  • There are investor fears of market saturation, as the company closed 56 shops in the first half of the year while opening 87 new ones.
• Bullish Case:
  • Management is not concerned about saturation and plans to continue its expansion, aiming to open 140 to 150 new stores per year.
  • The long-term goal is to reach 3,000 stores in the medium term.
  • A specific Discounted Cash Flow (DCF) model mentioned in the podcast suggests a fair value of £21 per share.
    • This represents a potential upside of over 20% from its current price.
    • The model's assumptions are 5% revenue growth and 7% free cash flow margins for the next 10 years.

Takeaways

• Greggs presents a potential opportunity for investors who believe in the management's growth strategy and think the market saturation fears are exaggerated.
• The stock's significant 40% decline could offer an attractive entry point if the company achieves its expansion goals.
• The speaker provides a specific valuation target of £21 per share, offering a concrete benchmark for potential returns, though this is based on a specific set of assumptions.

Jet2 PLC (JET2.L)

• Jet2 is an airline and package holiday company. The speaker discloses that they own shares in this company.
• Despite releasing strong earnings, the stock fell 10%, which the speaker attributes to the extremely negative sentiment surrounding UK companies.
• Bullish Case:
  • Recent earnings beat expectations, with sales up 15% and profit after tax up 12%.
  • The company announced a new share buyback program.
  • The CEO stated that demand is strong across all demographics.
  • Jet2 has a history of being a consistent operator, with shares returning over 14% per year for the past 10 years.
  • Its business model focuses on higher-margin package holidays, not just flights.
  • The company has a very strong balance sheet with over £1 billion in cash.
  • The valuation is extremely low, trading at less than 5 times free cash flow.

Takeaways

• Jet2 appears to be a case of a strong, well-run company being undervalued due to broad, negative market sentiment rather than its own performance.
• For investors, this could be an opportunity to buy a quality business at a significant discount.
• Positive signs include strong financial results, a healthy balance sheet (£1B+ in cash), a new share buyback, and a business model focused on higher-margin products. The valuation of less than 5 times free cash flow is highlighted as being "too cheap even for an airline."